VAT impact on unemployment “not clear cut”

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While it is difficult to predict with any accuracy the effect of the recent 2.5% VAT increase on the unemployment rate, there are theoretical indicators that can help build a picture.

The Chartered Institute for Personnel and Development (CIPD) recently demonstrated the potential impact on unemployment, producing a figure of 250,000 job losses.

The CIPD came to this figure using OBR statistics - suggesting that the 20% VAT rise will reduce real GDP in 2011/12 by 0.3%, which when applied to employment estimates, gives a figure of 250,000 loses.

In spite of these less than encouraging projections, there are as usual many in the profession voicing a level of scepticism about the stats.

George Bull, head of Tax at Baker Tilly, said: “To what extent will the theoretical figures reflect the eventual reality?

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About Robert Lovell

Business and finance journalist

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