Standardised VAT plan slammed

Date: 12th August 2008

A leading pressure group has criticised recent calls for the government to standardise the rate of VAT across all goods.

The Institute for Fiscal Studies said earlier this month that scrapping the zero and reduced VAT rates would create a fairer system and that the extra revenue could be used to fund some other tax breaks.

However, the pressure group Tax Research LLP has now said that the plans are flawed.

In an interview with Accountancy Magazine, the pressure group's director, Richard Murphy, suggested that the move would actually add £700 a year to the cost of food and £100 a year to fuel for the average family.

He said: "The IFS says the inflation impact is 0.25 per cent. That's wrong. I estimate the inflation impact of a median family would exceed four per cent.

"In compensation, the IFS has said the lowest 30 per cent in the income strata should have benefit increases sufficient to neutralise the impact or make them better off. The rest should enjoy tax cuts. These are bound to go to the wealthiest, they always do."

Mr Murphy told the publication that he believed the proposals were "massively regressive" and that the promised compensatory package could not actually "be guaranteed to search those who need it".