Researchers have claimed that VAT could rise as high as 25 per cent as the Government struggles to reduce the budget deficit.
According to findings from the Institute of Fiscal Studies, the current slow growth of the economy means that in order to meet its targets, the Government may be forced to increase VAT to 25 per cent or impose further cuts.
Despite pledging to reduce Government spending during the run-up to the last election, spending on programmes such as welfare have increased during the year due to unemployment.
“Since the Budget, the outlook for the UK economy has deteriorated and Government receipts have disappointed by even more than this year’s weak growth would normally suggest,” said the deputy director of the IFS, Carl Emmerson.
“As a result, the Chancellor might find himself having to abandon one of his fiscal targets. If much of the additional weakness this year feeds into a permanently higher outlook for borrowing, then in order to comply with his other fiscal target Mr Osborne would need to announce yet more tax rises or spending cuts for the next parliament in next week’s Autumn Statement. In that case the planned era of austerity could run for eight years – from 2010–11 to 2017–18.”
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