VAT Rise Will Cause Job Loss

November 3, 2010 Taxation in UK

Speaker at the CIPD ConferenceThe UK will lose over 1.6 million jobs by mid-2015 due to the planned increase in the Value Added Tax rate and scheduled cuts to government spending.

On November 2nd the UK Chartered Institute of Personnel and Development (CIPD) released a new report with projections of future job losses potentially caused by upcoming tax changes and slashes to Government spending. According to the report, the UK economy will see nearly 1.625 million jobs lost within approximately 5 years. The conclusions presented within the report oppose statements made earlier by the Government’s Office for Budget Responsibility, which claimed that job losses in the country would not exceed 610,000 during the same time period.

In January 2011 the UK will see the national Value Added Tax (VAT) rate increase from 17.5 percent to 20 percent, which, according to the report, will lead to a loss of approximately 200 000 private sector jobs within 5 years. Additionally, the Government’s planned austerity measures are projected to cost 725 000 public sector jobs and a further 650 000 private sector jobs.

According to John Philpott, chief economic adviser of the CIPD, to maintain the total unemployment figure at a steady 2.5 million, the Government will need to use a significant portion of the new VAT revenues to stimulate new job creation in the UK. The CIPD estimates that nearly 320 000 new jobs have to be created per year in the country to maintain an acceptable unemployment level. As consolidation, John Philpott stated that he personally believes that the private sector is “perfectly capable” of creating 300 000 new jobs annually. However, the Government will need to take care that its planned austerity measures do not clash with the scheduled VAT increase to undermine the economy’s job creation potential.

Photo by CIPD