VAT 'to increase in January'

Date: 23rd July 2009

The rate of value added tax (VAT) is to be brought back to 17.5 per cent as last year's temporary cut is proving to be too expensive to the Treasury, it has been claimed.

In December 2008, chancellor of the exchequer Alistair Darling cut the VAT rate from 17.5 per cent to 15 per cent in a move to encourage consumer spending and boost cash flow in the economy.

The cut was to remain in effect for just one year, which was sharply criticised at the time as sceptics noted that spending was unlikely to improve by the small reduction.

Now, the Norfolk Eastern Daily Press reports that Mr Darling has admitted to business leaders in the region that the cut will not be extended beyond January 2010 as it is costing the government some £1 billion a month.

Chris Starkie, chief executive of Shaping Norfolk's Future, revealed to the publication: "We … made a plea for the reduction in VAT to be extended to support retail and tourism businesses in particular.

"He was sympathetic to our concerns, but clear the VAT reduction would not be extended."