Group calls for cut in VAT

10/11/2008

VAT should be reduced from 17.5 per cent to 12.5 per cent, a report from the Centre for Economics and Business Research (CEBR) has said.

According to the new analysis, the temporary reduction would provide a stimulus to the economy - therefore helping to ward off the possibility of the current downturn being deep and long-lasting.

Last quarter's official GDP figures showed that the economy shrank by 0.5 per cent and most analysts expect the UK to be in full-blown recession by the end of the year.

In its own bid to stimulate growth, the Bank of England cut interest rates from 4.5 to three per cent last week.

Commenting on the possible VAT suspension, CEBR chief executive Doug McWilliams said: "Additional public works [to boost the economy] would take too long to organise, though they may be part of the solution for later years.

"What is needed now is an early and possibly temporary tax cut… at least until the end of 2009."

The cost of the move to public finances is estimated by the CEBR to be £24 billion.

However, Mr McWilliams said that the government would make most of this up if it boosted consumer spending and lessened the severity of the downturn.

Tags; Budgeting Advice, Young Family Finances,

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