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Possible VAT rise predicted

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A new government may have to give serious consideration to an increase in VAT, it has been forecast.

Azad Zangana, European economist at Schroders, the asset management group, believes that a hike in VAT could be on the cards.

Both the government and the Conservatives have done nothing to preclude a rise in VAT following the general election, although Labour has committed itself to maintaining the zero rating for such essential items as books, food and children’s clothes.

Following a year-long cut to 15 per cent in 2009, the standard rate of VAT rose once more to its old level of 17.5 per cent in January.

Mr Zangana predicted a possible rise to 19 per cent as one important method of increasing the government’s tax take and reducing the budget deficit.

He said: “We believe that raising VAT from its current rate of 17.5 per cent to 19 per cent would make not only make a significant contribution to the black-hole in the government’s budget forecast, but it would also be the most efficient way of collecting revenues quickly – as a result, we expect VAT to be raised to 19 per cent after the general election.”