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VAT Rate To Rise By 2.5% To 20%

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An increase in the  from 17.5% to 20% would raise an extra £13 billion a year for the public purse.  And levying VAT on food - which is currently exempt - albeit at a lower rate of 5%, would bring in an additional £3.5 billion a year. 

As reported in the  last week, regardless of which party wins the next general election, an increase in the standard VAT rate to 20% now seems inevitable.

While levying VAT on food remains a politically sensitive topic, domestic heating fuel and children's car seats are already subject to the reduced 5% rate, so it should not be ruled out.

The scale of the problem

Figures from the show that public sector net debt reached £870 billion at the end of December 2009.  And net debt, expressed as a percentage of gross domestic product, was 61.7%.

(NB. This compares with net public sector debt of £733.9 billion - or 51.7% of gross domestic product - in December 2008.)

The net borrowing requirement for 2009/2010 is forecast to be £178 billion so unless the UK experiences some kind of economic miracle public sector debt will rise again this year.  Obviously this level of debt is unsustainable.

Levels of VAT / sales tax overseas

Across vary from 15% to 25% - the European average is somewhere around 20%.

In the USA, however, where , tax rates range from nil (in Montana, New Hampshire, and Oregon) to 8.25% (California).

 has a Goods and Services Tax rate of 10%; has one set at 12.5%; and in sales taxes vary from 5% to 15.5% depending on the province you're in.

Why the difference?

European countries tend to spend more on public services - such as education, healthcare, and social services - than other nations.  Hence they need to raise more revenue to pay for them through higher taxes.

** VAT Rates - Additional Information & Advice **

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