Downing Street is working on plans to cut VAT in a bid to ease the cost of living burden on struggling British households, reports suggest.
The Times reported on Thursday that No 10’s chief of staff Steve Barclay had suggested the temporary reduction in the 20 per cent rate of tax in the hope of easing tax bills for millions and blunting the spiralling rate of inflation.
It comes after modelling from the Office for National Statistics (ONS) revealed that the rate of inflation in the UK, at 9.1 per cent, had reached its highest point since at least February 1982.
But the plans – which would see VAT cut to 17.5 per cent – have reportedly stirred up controversy within the Treasury, due to fears it could overstimulate the economy and stoke the already raging rate of inflation.
The newspaper claims that Mr Barclay, the MP for North East Cambridgeshire, first raised the idea of VAT cuts in talks with the Treasury in the past two weeks, during which he referred to the move as “de-inflationary”.
A source familiar with the plans told The Times: “Steve’s been pushing it quite strongly but the Treasury is not buying it.”
A second source also claimed that Treasury officials had mooted the idea of potential VAT cuts last month. But, ultimately, the ideas were scrapped over worries it could lead to a short-lived fall in inflation followed by a more severe recession.
Paul Johnson, head of the Institute for Fiscal Studies, told The Times that cuts to VAT would be “economically inappropriate”.
He added: “It would reduce inflation in the short run because it would reduce prices relative to what they would have been. But it would increase inflation next year. It can’t help in the long run.
“And it could actually lead to higher inflation overall because you would be pumping extra money into an economy where demand is already outstripping supply. Stimulating demand at the moment would be economically inappropriate. On this one the Treasury is right.”
A source close to Mr Barclay said: “Steve has reinforced to ministerial colleagues that decisions on tax need to be taken by the prime minister and chancellor and that in exploring options, colleagues need to follow up on the commitments the prime minister made in his letter to MPs at the time of the leadership vote.”
They’ve been sitting on that for months.
Funny how they were the ones that increased it to 20 in the first place from 17.5.
And now they’re just copying what labour did almost 15 years ago
Realistically, is 2.5% going to make fuck all difference to those who are really struggling? Apart from looking good on their paper?
[deleted]
This benefits the rich much more than the poor as the more you are spending on luxuries the more you’d be saving, those on the breadline are already buying cheap products and a couple of percent cut on those is pennies.
shouldnt have vat on basic food staples anyway.
luxury items sure. chocolate, sweets, puddings etc sure. but basic groceries absolutely not. it just ends up another mechanism that results in the poor paying more of their income on tax than the rich.
Eliminate VAT. Increase personal tax allowance up to 22,000 a year.
It would lower revenues but it would also lower administrative costs when the government can stop paying people that effectively take money off people and then turn around and give it back in benefits.
A tax that doesn’t get charged on essentials?
A VAT cut will make no difference whatsoever to the cost of living, companies will just keep prices the same and take a bigger cut as profit.
How much of the 2.5% will actually be passed on in the form of price cuts? Probably very little.
Just like the 5p fuel duty cut, corporations will swallow the difference in extra profit.
VAT cut doesn’t mean cheaper prices for consumers. Last time VAT was dropped to 15% most businesses added 5% to prices. Like WTF happened to the 5p off fuel 😂
Companies will just close the gap and pocket the extra profits.
Unless they can do something to stop the huge increase in fuel prices that are expected in October, this is not going to do as much as people would hope. It will be great PR for the Tories and they will be able to say “We did this.” at the next election, however millions are still going to find themselves in poverty after all this.
Twill have little effect because nobody is buying anything except the basics of food and fuel. Removing VAT on fuel would be far more useful. Taxing the wealthy would also solve a few issues.
How about we get rid of income tax lol, never happen but the amount of my money that gets taken from me for it is sickening
I’ve always thought VAT is such a scam, a fifth of the price of goods going to the government. For what, exactly? Being benevolent governers, acting in our best interest?
Careful now, tories think a 2.5% cut will overstimulate the economy….at a time where people are struggling to afford to get to work, let alone go anywhere to go shopping
18 comments
Downing Street is working on plans to cut VAT in a bid to ease the cost of living burden on struggling British households, reports suggest.
The Times reported on Thursday that No 10’s chief of staff Steve Barclay had suggested the temporary reduction in the 20 per cent rate of tax in the hope of easing tax bills for millions and blunting the spiralling rate of inflation.
It comes after modelling from the Office for National Statistics (ONS) revealed that the rate of inflation in the UK, at 9.1 per cent, had reached its highest point since at least February 1982.
But the plans – which would see VAT cut to 17.5 per cent – have reportedly stirred up controversy within the Treasury, due to fears it could overstimulate the economy and stoke the already raging rate of inflation.
The newspaper claims that Mr Barclay, the MP for North East Cambridgeshire, first raised the idea of VAT cuts in talks with the Treasury in the past two weeks, during which he referred to the move as “de-inflationary”.
A source familiar with the plans told The Times: “Steve’s been pushing it quite strongly but the Treasury is not buying it.”
A second source also claimed that Treasury officials had mooted the idea of potential VAT cuts last month. But, ultimately, the ideas were scrapped over worries it could lead to a short-lived fall in inflation followed by a more severe recession.
Paul Johnson, head of the Institute for Fiscal Studies, told The Times that cuts to VAT would be “economically inappropriate”.
He added: “It would reduce inflation in the short run because it would reduce prices relative to what they would have been. But it would increase inflation next year. It can’t help in the long run.
“And it could actually lead to higher inflation overall because you would be pumping extra money into an economy where demand is already outstripping supply. Stimulating demand at the moment would be economically inappropriate. On this one the Treasury is right.”
A source close to Mr Barclay said: “Steve has reinforced to ministerial colleagues that decisions on tax need to be taken by the prime minister and chancellor and that in exploring options, colleagues need to follow up on the commitments the prime minister made in his letter to MPs at the time of the leadership vote.”
They’ve been sitting on that for months.
Funny how they were the ones that increased it to 20 in the first place from 17.5.
And now they’re just copying what labour did almost 15 years ago
Realistically, is 2.5% going to make fuck all difference to those who are really struggling? Apart from looking good on their paper?
[deleted]
This benefits the rich much more than the poor as the more you are spending on luxuries the more you’d be saving, those on the breadline are already buying cheap products and a couple of percent cut on those is pennies.
shouldnt have vat on basic food staples anyway.
luxury items sure. chocolate, sweets, puddings etc sure. but basic groceries absolutely not. it just ends up another mechanism that results in the poor paying more of their income on tax than the rich.
Eliminate VAT. Increase personal tax allowance up to 22,000 a year.
It would lower revenues but it would also lower administrative costs when the government can stop paying people that effectively take money off people and then turn around and give it back in benefits.
A tax that doesn’t get charged on essentials?
A VAT cut will make no difference whatsoever to the cost of living, companies will just keep prices the same and take a bigger cut as profit.
How much of the 2.5% will actually be passed on in the form of price cuts? Probably very little.
Just like the 5p fuel duty cut, corporations will swallow the difference in extra profit.
VAT cut doesn’t mean cheaper prices for consumers. Last time VAT was dropped to 15% most businesses added 5% to prices. Like WTF happened to the 5p off fuel 😂
Companies will just close the gap and pocket the extra profits.
Unless they can do something to stop the huge increase in fuel prices that are expected in October, this is not going to do as much as people would hope. It will be great PR for the Tories and they will be able to say “We did this.” at the next election, however millions are still going to find themselves in poverty after all this.
Twill have little effect because nobody is buying anything except the basics of food and fuel. Removing VAT on fuel would be far more useful. Taxing the wealthy would also solve a few issues.
How about we get rid of income tax lol, never happen but the amount of my money that gets taken from me for it is sickening
I’ve always thought VAT is such a scam, a fifth of the price of goods going to the government. For what, exactly? Being benevolent governers, acting in our best interest?
Careful now, tories think a 2.5% cut will overstimulate the economy….at a time where people are struggling to afford to get to work, let alone go anywhere to go shopping