Labour pledged a return to 17.5% VAT, a national insurance tax break and a repeat of the bank bonus tax at this year’s party conference.
Speaking at the event in Liverpool, shadow chancellor Ed Balls announced five steps a government must adopt to create a “steadier, more balanced plan to get our deficit down and take immediate action to support the economy and create jobs”. The Chancellor attributed recent economic instability to January's 20% VAT rise. As part of his five-step plan, Balls proposed a return of VAT to 17.5% and an immediate one-year cut to 5% for home improvements, repairs and maintenance. The Federation of Small Businesses disagreed with Labour's plans for VAT. “While we agree with Labour that something needs to be done, we believe that a full reversal of the VAT rise is not the answer,” said FSB national chairman John Walker.
Targeted VAT cuts to 5% for construction and tourism businesses would have more impact on growth and generate more revenues for the Treasury, he argued.
AccountingWEB members were also sceptical about the VAT cut. Several members pointed out in an Any Answers thread this week that the previous cut to 15% in 2008 produced minimal growth. One member argued: "If you cut the main rate of VAT on everything or on specific industries (such as retail or construction) all it does is encourage a little more demand within the period that VAT is cut, to the detriment of the periods shortly before/after the VAT cut."
e improvements, repairs and maintenance.