Election: VAT Becomes Political Football

With the World Cup getting nearer it is natural that we are thinking about football, however it looks like it is VAT that is getting kicked around by the politicians during the pre-election debate.

With the launch of their manifesto this morning, Labour set out their plans and pledges for taxes. They will not be raising income tax rates (though future National Insurance rises are likely to be in their sights) and they will not be extending the scope of VAT, they said.

Phew, we can breathe a sigh of relief that if Labour wins, then VAT will remain at current rates and with no VAT on food, books and childrens’ clothes. Sadly that is not the full picture. It is what Labour left out of their manifesto that is the most significant aspect of the VAT debate.

Whilst pledging to not extend the scope of VAT, Labour did not make any promises to keep VAT rates where they are. This means that they can raise VAT rates if they want to in the future. When asked in interviews Labour spokespeople said that they have a good history of avoiding VAT rises, and then purposefully evaded any question about increasing VAT in the years to come.

So the scope of VAT will not be extended under Labour, but the VAT rate could be increased. That is not sounding too good.

The Conservatives are kicking the VAT football around too.

They also have not made any pledges (so far) about keeping VAT at the current level of 17.5%. They have been concentrating on their plans to reduce National Insurance.

So VAT could rise if the Conservatives win the election. Or if Labour win it too.

Will there be an increase in VAT within the next year or so? I think that reading between the lines we know the answer already. Yes, it is very likely that VAT will go up, probably to 20%, whoever wins the election.

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