VAT - what next?

VAT will go up in tomorrow's emergency budget.

Let's look at the history :

VAT was introduced in the early 1970's, replacing various sales taxes that had existed until then.
Rates were increased in Geoffrey Howe's first budget, paying for income tax reductions and attempts at budget deficit reductions (sic).

Rates were increased again in 1991 to pay for John Major's cuts in the the poll tax.

The VAT tax base was also extended in 1984 to hot take away food, and building improvements. A particularly controversial extension to domestic fuel spending was made in 1994.

Initially, the basic rate of VAT was set at 8% with a higher rate of 12.5% on luxuries, but this didn't last long and in 1979 a single rate of 15% was introduced. The current rate of 17.5% was introduced in 1991 where it has pretty much remained ever since.

I reported recently on the problems in Greece where the rates have gone from 8%/18% to 10%/21% in the last few months. Also, current EU law stipulates that the basic rate cannot be less than 15% and the lower rate not less than 5%, so we aren't much over those minima at the current rates.

Denmark, Hungary and Sweden lead the table with 25%. Only Cyprus and Luxembourg (15%) and Spain (16%) have lower rates than the UK and I wouldn't bet on Spain staying that low. In general then, most European rates are higher than ours.

My bet is on a new rate of 20% and I wouldn't bet against reintroducing the luxuries rate of 25% again either - as long as the luxuries they cover don't include the everyday basics of life.

Whatever happens, let's at least look the public straight in the face and tell them how it is. We had enough of stealth taxes from the last prat...