UK headed to 24% VAT rate?

Thu 24th May 2018

The influential Institute for Fiscal Studies has today issued a warning that the UK will face tax rises to support the expectations of continuing, or even improved, care on the National Health Service.

VAT or Payroll Taxes rises?

A rise from the current VAT rate of 20% to 24% would meet the current level of health care over the next five years. The other major tax sources, income tax and National Insurance Contributions (NICs), may not prove viable. NICs is not due by retired earners, so may create generational tensions. Four out of ten adults do not pay Income Tax, and so a rise on this tax would create further distortions.

The IFS report says:

“It is unlikely that a significant fraction of any additional health spending can be found from increasing current charges or introducing new ones – not unless we want a fundamentally different NHS. Social care is already highly reliant on private funding and most reform proposals imply less rather than more reliance on individual contributions. The implication is clear: in the medium term, if we want even to maintain health and social care provision at current levels, taxes will have to rise. It is hard to imagine raising this kind of money without increases in at least one of the three biggest taxes – income tax, National Insurance and VAT. By way of illustration, you can raise about £5 billion by increasing all the main rates of income tax by a penny, about £6 billion by putting a penny on VAT and about £10 billion if you put a penny on each of the main employee, self-employed and employer NI rates.”

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