Reduce VAT, urges research think-tank

10 November 2008

The government has been urged to reduce the rate of VAT by an independent research consultancy.

According to the Centre for Economics and Business Research (CEBR), the dramatic fall in interest rates, extra capital for the banks and the government’s commitment to public spending will not be enough to revive the ailing UK economy in the immediate future.

Douglas McWilliams, the CEBR’s chief executive, said: “Further interest rate cuts, liquidity injections and a recasting of the failing bank rescue plan are important elements for getting the economy right. But the emerging evidence is that the position in the UK is so bad that it cannot be resolved without Keynesian measures.

“Additional public works 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.”

Mr McWilliams continued: “A reduction in VAT at least until the end of 2009 to 12.5 per cent would be a good start. The gross cost would be £24 billion. But the net cost would be much less – possibly even nothing if the impact on confidence is sufficient to stop the recession from intensifying.

“Government borrowing will soar well over the £100 billion mark but it is bound to do so in any case.”