Increasing VAT to 20% would cost 163,000 jobs over four years and reduce consumer spending by £3.6 billion in the same period, according to the British Retail Consortium (BRC).
The trade organisation has warned that the widely mooted tax rise – expected in next month’s Budget – would reduce the UK’s deficit by £11.3 billion, but by the end of that first year there would be 30,000 fewer jobs than if there had been no increase, and consumer spending would be £1.6 billion less than if the standard rate of VAT were left at 17.5%. The losses would then continue to rise.
Higher VAT means lower demand for goods and services as prices go up and firms’ employ fewer people or hold back on job creation, said the BRC following publication of analysis commissioned by the organisation, which examines the impact of a range of possible VAT increases.
A 19% rate would cost 99,000 jobs over four years, while a rise to 22.5% would mean 317,000 fewer jobs over the same period, claims the document. It goes on to quantify the economic impact of the National Insurance increases set to be announced by the Chancellor in June.
The Government has said it will increase employees' NI contributions by 1% and employers' NICs by 0.5%.
The changes will reduce UK job numbers by 25,000 in the first year and by 109,000 after four years, claimed the BRC. Consumer spending would contract by £948 million in the first year and £2.2 billion after four years.
The trade body’s director general, Stephen Robertson, said, ‘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.
‘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.’
