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Darling confirms rise in VAT

Published:  09 December, 2009

Chancellor Alistair Darling has confirmed that value added tax will return to 17.5% in January, but claims there will be no further direct rise on alcoholic drinks duty tax.

Disappointment reverberated throughout the industry after it had urged the government to cut duty on wine and spirits when VAT is restored to its standard 17.5%.

The temporary reduction of VAT to 15% in November 2008, was accompanied by an increase in excise duty of 8% for wine and 4% for spirits, which the Wine and Spirits Trade Association claimed made the VAT change broadly cost-neutral for alcohol.

Chief executive of the WSTA, Jeremy Beadles said: "Today's confirmation that these tax increases will remain in place is disappointing for the trade and the millions of British consumers they serve, though sadly it is not surprising given the state of public finances."

"This means that since last year's Budget excise duty has gone up by around 20% for wine and 16% for spirits - excessive increases at a time when most families are feeling the pinch."

Gary Harley, head of indirect tax at KPMG, said: "While the return to a VAT rate of 17.5% as of 1st Jan 2010, is not unexpected, it will still be a disappointment for many in the retail sector who hoped for an extension.

"However, regardless of which party wins the upcoming election, a further VAT rise cannot be ruled out as a way of reducing the budget deficit - a rise of 2.5 percent rise in VAT could raise £13.5bn, 7% of the budget deficit.

"The average VAT rate across Europe is now just over 20% - the UK currently has the fourth lowest VAT rate in Europe. In the past few years Germany and the Netherlands have increased their rate to 19%. It wouldn't be surprising if the UK Government decided to bring the UK rate in to line with its European competitors. Spain is already doing this, raising their rate from 16 to 18% from the 1st July 2010."