VAT increase to 20% would be “intently regressive”

Conservative plans to increase VAT to 20%, which have not been ruled out by their HQ, would be "intently regressive." It would mean that the poorest fifth of the population would spend a total of 13.8% of their disposable income on VAT, up 1.7 percentage points. This is more than double what the richest fifth would pay.

Despite reports on the BBC that the Tories have “absolutely no plans” to introduce a 20% rate of VAT, City AM this morning quotes a Conservative Party spokesman saying they “could not rule out the move.”

Analysis by Left Foot Forward – based on figures from the Office of National Statistics (Table 3) – outline the distributional impact of a VAT rise of 17.5% to 20% on disposable income. The policy would mean that the poorest fifth of the population would spend a total of 13.8% of their disposable income on VAT, up 1.7 percentage points. This is more than twice as much as the richest fifth would spend of their disposable income. Some of this would be mitigated by rises in benefit and tax credit levels but the outcome would remain regressive.

Writing on his blog earlier today, Richard Murphy – founder of the Tax Justice Network – said:

“VAT is intently regressive – meaning that the burden of the tax falls much more heavily on low earnings households than it does on those with higher income.”

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