Will an increase in VAT kill the recovery?
As the UK government looks set to push the VAT level back to 17.5% from the reduced 15% rate there are concerns that the ongoing recovery in the UK economy could be strangled at source. There are real concerns about the financial stability of companies on the high Street and the fact that consumer spending has fluctuated enormously over the last few months with more and more consumers looking to the online arena. But will an increase in VAT effect the economic recovery?
The simple fact is that a return to the level of 17.5% VAT would effectively withdraw just short of £1 billion a month from the UK business arena and increase the cost to consumers. At a time when consumers are still struggling to find money to make ends meet its seems mad to increase VAT but then again UK national debt is estimated at over £1 trillion and rising by the day.
It is simply a case of better the devil you know with an increase in VAT less likely to attract the same hostility as the introduction of a new tax would or indeed a short-term increase in income tax rates. Many UK consumers will already be expecting VAT to rise to former levels although there are significant concerns within the business arena that some companies will struggle to survive. When you also consider that UK banks are still loath to lend money to many UK retailers the situation could get very much worse on the high street.
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