VAT is to be increased to 20% from January 4, Chancellor George Osborne revealed in the emergency Budget today.
Food, newspapers, books and children’s clothing will remain exempt from VAT in this Parliament, Osborne announced in the House of Commons.
Osborne said: “This single tax measure will, by the end of parliament, generate £13bn of extra revenues.”
To uproar from the opposition benches, he added: “The years of debt and spending make this unavoidable.”
Osborne also said the National Insurance threshold will rise to £21 a week in April 2011 and that the cost of hiring people on incomes lower than £21,000 will be lower.
Corporation Tax will be cut by 1% a year for four years until it reaches 24% in 2014. Next year it will be set at 27%.
Small companies’ corporation tax rates will be cut to 20%, benefitting 850,000 businesses. The government will also continue to guarantee small companies access to lending.
There will be no new increases in duties on alcohol, tobacco or fuel, Osborne said. The Chancellor will report back to Parliament in the autumn on possible health-related measures on alcohol.
The coalition Government also revealed a new tax scheme to encourage new private business to set up in the regions. New businesses set up outside London, the south-east and east of England will be exempt from £5,000 of National Insurance contributions for each of first 10 employees they hire.
However the prospect of public spending cuts, pay freezes and likely job losses could hit consumer confidence and spending.
Trade body the British Retail Consortium said it was disappointed by the VAT rise, which threatens jobs, consumer spending and growth, but relieved that the range of goods covered by the tax would not be increasing. The approach to implementation is now the main concern, said BRC director general Stephen Robertson.
Chancellor George Osborne is to reveal the details of the Lib-Con emergency Budget today. Here Retail Week follows the developments and their impact on the retail sector.
1240: Osborne says everyone will be asked to contribute to reducing the deficit and that everyone will “share in the rewards when we succeed”.
1245: Osborne says the Office for Budget Responsibillity forecasts economic growth over the next five years of 1.2% this year, 2.3% next year, 2.8% in 2012, 2.9% in 2013 and 2.7% in 2014 and 2015.
The CPI is forecast to reach 2.7% by the end of the year.
The rate of unemployment is set to peak at 8.1% this year and be 6.2% in 2015.
1247: Osborne says he is planning for a “sustainable” private sector built on economic growth instead of “pumping the debt bubble back up”.
1250: Osborne says the deficit reduction should come from lower spending levels rather than higher taxes.
1252: Osborne says he will not cut capital spending further.
1256: Osborne says that the public sector will have its pay frozen for two years in order to “share the burden” after the private sector was hard hit during the recession.
1305: “We will do everythign to create jobs in the private sector” says Osborne.
1306: Osborne says he wants a sign over UK business saying that “we are open for business”
1308: Corporation Tax will cut by 1% annually for four years until it reaches 24%. It will be set at 27% next year. Small Companies Tax Rate to be cut to 20%.
13.11: In January 2011, the banks levy will be introduced on UK banks and UK operations of foreign banks which generate more than £2bn in annual revenue.
13:12: Osborne says businesses “want certainty and stability from the government so they can start the process of rebuilding their businesses.”
13:15: The Government will reveal a new tax scheme to encourage new private business to set up in the regions. Anyone who sets up a new business outside London, the south-east and east ofEngland will be exempt from £5,000 of National Insurance contributions for each of first 10 employees they hire.
1316: VAT to increase to 20% from January 4, 2011. Food, newspapers, books and children’s clothing remains exempt from VAT in this Parliament.
“The years of debt and spending make this unavoidable,” Osborne says. The VAT increase will deliver £13bn a year extra of revenues.
There is uproar from the opposition benches.The deputy speaker called for restraint in the Commons after much jeering by MPs.
There will be no new increases in duties on alcohol, tobacco or fuel, Osborne said. He adeds that he will report back in the autumn on possible health-related measures on alcohol.
Also said he understands the economic impact of fluctuating fuel prices, and said he will look into the possibility of stabilising pump prices.