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Emergency Budget 2010: mixed reaction to VAT increase

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Business groups appear to have accepted the emergency Budget rise in VAT to 20 per cent with a certain resigned stoicism.

The Federation of Small Businesses (FSB) said that the plans will hurt small but welcomed the decision to set the increase for 4 January 2011 and not New Year’s Day.

Given the state of the public finances, the Forum of Private Business (FPB) conceded that a VAT rise was probably the most acceptable of tax rises.

Phil Orford, the FPB’s chief executive, said: “”Obviously, the VAT rise will have an impact on many smaller businesses, either directly or indirectly. However, the money to pay off the deficit has to come from somewhere and I expect most Forum members would rather stomach a VAT increase than a rise in other taxes, or even greater cuts in public spending.”

It was a sentiment echoed by the British Chambers of Commerce (BCC).

David Frost, the BCC’s director general, described the rise as the “least worst” increase in business tax.

He, too, took note of the timing: “While the rise will inevitably affect businesses and consumption, we are pleased that the Government has put off the increase to 4 January 2011 – exactly what we called for when the main rate rose earlier this year. A few days’ delay after New Year gives businesses time to adjust.”

But not everyone was reconciled to the change.

Stephen Robertson, the director general of the British Retail Consortium (BRC), considered the rise “disappointing”.

Mr Robertson said: “We didn’t want a VAT increase. It’ll hit jobs, consumer spending, the pace of recovery and add to inflation but we accept the government has no easy options.

The BRC took some consolation from the fact that the range of VAT chargeable products is not being extended.

The advance flagging of the hike was also helpful, the BRC added. “The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult but retailers would rather have more notice than less,” said Mr Robertson. “Six months to prepare is better than the rise coming-in this summer. Retailers will work hard to implement the increase smoothly but there must be a light-touch to enforcement at the time of introduction.”