Target VAT, Chancellor is urged

14 November 2008

The government should consider a temporary reduction in the rate of VAT in its pre-Budget Report.

The advice came from the Chartered Institute of Taxation (CIOT).

It is thought that the Chancellor is drawing up plans for tax cuts as a way of helping to stimulate the economy during the downturn.

The CIOT, however, has warned that any new tax measures must be carefully thought out and should not create imbalances and problems in the medium and longer term.

One tax-cutting move that could be implemented immediately and effectively would be a temporary reduction in VAT, the CIOT argued, as is allowed under EU law.

Andrew Hubbard, the CIOT’s deputy president, said: “A reduction of VAT would help those on low incomes as well as small and large businesses. It is relatively easy to implement and can be time limited.”

Mr Hubbard expressed concern that short-term tactics could end up adding to the UK’s economic difficulties as much as resolving them.

He said: “Although there may be a need for short term fiscal measures, the government needs to ensure that any changes make sense in the medium to long term.

“History shows too many cases where short-term measures introduced to deal with particular problems have ended up creating more problems than they have solved. Getting the balance right will be far from easy but it is essential that any new measures are properly thought through.”