The International Monetary Fund (IMF) has urged Chancellor George Osborne to consider raising the VAT on energy bills and other currently exempt items, in order to boost government coffers.
According to the IMF, the government’s fiscal programme could benefit from a number of “growth-enhancing initiatives” that would partially help to offset the drag from consolidation and boost economic recovery.
One of these could be the introduction or modification of the composition of growth-friendly measures such as reducing marginal effective corporate tax rates in order to bring investment forward, and the introduction of tax allowances for raising equity.
Consumers pay the price
However, these measures would need to be funded by the Treasury, and the IMF suggested that this could be done by increasing the amount of items that are currently subject to the full rate of VAT.
“To offset the budgetary impact of these measures over the medium term, the government could undertake a reform of property taxes and consider broadening the VAT base,” the IMF suggests.
Though the organisation did not explicitly mention which items would be subject to VAT increases, those currently exempt or charged at a lower rate include food, the construction of new homes, children’s clothes, and electricity and gas.
The IMF’s figures complement recent research carried out by the thinktank Reform,which suggested that the government could raise around £15 billion by broadening the VAT base to include energy and other items, but for now the government seems reluctant to adopt any new measures.
Mr Osborne said he has no plans to follow the IMF’s advice and claimed there is plenty of scope to bolster the economy within the fiscal plan he has already established.
“There are no easy answers to problems built up in the UK over many years. It’s a hard road to recovery, but we’re making progress,” he added.
For now, it seems that energy bills will not be following pasties onto the list of things that the government wants to raise tax on.