VAT hike: 163,000 job losses in retail sector

By SiliconIndia   |    1 Comments
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Bangalore: Retailers warned Britain's new coalition government that raising the VAT sales tax from 17.5 percent to 20 percent which is indented to help cut the country's record budget deficit could lead to the loss of 163,000 jobs over the next four years.

VAT returned to 17.5 percent in January after an emergency cut to 15 percent by former Chancellor Alistair Darling which supported the economy in the darkest days of the recession. However, Conservative Chancellor George Osborne is expected by many to hike the VAT rate to 20 percent, possibly announcing this move as early as his June 22 Budget.

British Retail Consortium (BRC) 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."

But many argue that VAT is a regressive tax, costing poorer households more because they have to spend a greater proportion of their income. However, the British Retail Consortium's principal concern is about the impact of a VAT rise on jobs and spending.

The industry body pointed out that higher VAT meant lower demand for goods and services as prices went up and companies' margins were hit, meaning they would have to cut costs to keep trading, and so employ fewer people or hold back on job creation.

The BRC analysis shows a 19 percent VAT rate would cost 99,000 jobs over four years, while a 22.5 percent rate would mean 317,000 fewer jobs over the same period. Consumer spending would be down by $948 million.

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