George Osborne may have to raise VAT to 25% to balance the budget

IFS: George Osborne may have to raise VAT to 25% to balance the budget

George Osborne could be forced to put VAT up to 25 per cent to cut the
deficit, economists suggest today.



George Osborne will need £23 billion of
tax rises or spending cuts to meet his fiscal mandate unless the
economy improves, the IFS says Photo: Eddie Mulholland

By
Tim Ross, Political Correspondent 12:01AM GMT 26 Nov 2012

Weak economic growth and lower than expected tax payments have left a hole in
the Chancellor’s plans that may need to be filled by higher taxes or further
cuts to public spending, the Institute for Fiscal Studies said.

Even under the most “optimistic” forecast, the Chancellor will miss his target
for debt to fall between 2015 and 2016 and should abandon the goal, the IFS
said.

But a more pessimistic assessment suggests that Mr Osborne will also fail to
achieve his key “fiscal mandate”, which is to balance the budget within five
years, the IFS said.

The respected think-tank issues its projections today, as Coalition leaders
prepare to finalise the details of the Autumn Statement, which the
Chancellor will make next month.

Mr Osborne is said to be ready to delay a planned 3p increase in fuel duty
after protests from Tory backbenchers, while senior Liberal Democrats are
demanding fresh taxes on the wealthy.

In a new report, the IFS warned Mr Osborne that “the outlook for the public
finances has worsened” since the Budget in March.

High rates of government borrowing this year mean there is almost no chance
that Mr Osborne will meet his target for debt to fall as a share of national
income between 2015 and 2016, the IFS said.

His core “fiscal mandate”, to be on course to balance the budget over a
rolling five-year period, is also in jeopardy.

If the current weak growth and low tax receipts are permanent, the Chancellor
will need another £23 billion of tax rises or spending cuts to be on course
to meet his mandate by 2018, the report said.

The think-tank said this would be “roughly equivalent to increasing the main
rate of VAT from 20 per cent to 25 per cent”, or imposing even deeper
welfare cuts than announced so far.

Mr Osborne will deliver his Autumn Statement on December 5.

David Cameron will join the Chancellor today for talks with Nick Clegg and
Danny Alexander, the Lib Dem chief secretary to the Treasury, to agree the
key announcements before details are set to the government’s independent
forecasters at the Office for Budget Responsibility this week.

A Treasury spokesman said: “Action taken by the Government has cut the deficit
by a quarter, whilst over a million new jobs have been created in the
private sector, inflation is down, and the economy is healing.

“Britain still faces economic challenges at home and abroad but the Government
is taking the tough decisions needed to deal with our debts and equip our
economy for the global race.”

Source:-
http://www.telegraph.co.uk/news/uknews/9701989/IFS-George-Osborne-may-have-to-raise-VAT-to-25-to-balance-the-budget.html