UK VAT and NIC Increases Will Cut Jobs

May 28, 2010 Taxation in UK

ChangesRecent research indicates that the proposed increases to the UK’s Value Added Tax (VAT) rate would dampen consumer spending by GBP 3.6 billion, while lowering national employment by 163,000 over the same period.

On May 27th the British Retail Consortium (BRC) released a statement detailing the alleged future economic effects of the Government’s proposed 2.5 percent VAT rate increase. The BRC claims that the rate change would decrease the Government’s deficit by approximately GBP 11.3 billion within its first year, but at a cost of nearly 30 000 jobs lost throughout the country. Within four years, the figure would increase to 163 000 jobs lost across all employment sectors. Within a year of the rate change, consumer spending is also predicted to fall by approximately GBP 1.6 billion. The BRC also released estimates of the effect of different VAT rate rises. Under a 19 percent VAT rate, employment would fall by 99 000 jobs in four years, while a rate of 22.5 percent would cause the loss of 317 000 jobs.

Additionally, the BRC statement addressed the possible effects of increases to the National Insurance Contribution (NIC) rate. The currently anticipated 1 percent rise to employee contributions and the 0.5 percent increase to employer payments will also have significantly negative effects on employment and public spending. Within four years of the rate change, employment will fall by 109 000 jobs and consumer spending would decrease by GBP 2.2 billion.

The BRC conceded that the current Government budget deficit is extensive and requires immediate attention, but warned of the dangers of relying on VAT and NIC hikes as a solution. Stephen Robertson, British Retail Consortium Director General, elaborated on the BRC’s views, saying,”…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… business growth will get the country out of the hole it’s in, led by retail. The Government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.”

Photo by Jonathan Baker Photography

Tags:  , ,