The government has been urged not to increase VAT for fear of job losses and reduced consumer confidence.
The British Retail Consortium (BRC) believes increasing the rate of VAT to 20% would cost 163,000 jobs and £3.6bn in lost consumer spending over four years.
It said there was no simple way for David Cameron’s coalition to raise any significant amount of tax revenue without it having a dramatic effect on the economy.
The retail group commissioned research on the effects of possible tax rises which was carried out by the Centre for Economics and Business Research (CEBR).
Results suggested raising the VAT rate by 2.5% to 20% would reduce the deficit by more than £11bn in a year, but it would cost the UK 30,000 jobs. This figure would rise to 163,000 over four years.
The BRC has urged the government to continue to prioritise spending cuts over tax rises, and has also suggested slowing down the deficit reduction in order to ‘better support the recovery’.
There is also concern the scaled down increases to National Insurance Contributions will still claim 25,000 in the first year and reduce consumer spending by £948m.
“For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth,” said BRC director general, Stephen Robertson.
“The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information. Business growth will get the country out of the hole it's in, led by retail. The government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.”
© Crimson Business Ltd. 2010