The Value Added Tax (VAT) increase from 17.5% to 20% will have a very harmful affect to families in the UK.  It is estimated that each percentage increase in the VAT could result in the loss of 200,000 jobs.  Small businesses, faced with an increase in taxes, will have to cut costs somewhere just to maintain the amount of revenue they had before.  The most common ways to do this are to increase the prices of products or to cut jobs.  Although the United Kingdom has one of the lowest VAT in the European Union, an increase in the VAT could result in an additional £13.5 billion in revenue.

When faced with a reduction in revenue, many businesses increase the prices of their products to make up the difference.  When things cost more, consumers tend to buy fewer of them, which results in less money for businesses.  The VAT increase forces businesses to use more of their income to pay those taxes.  When the cost of business increases, those extra costs are usually passed on to consumers in the form of higher prices.  This affects the average family because more of their income will be spent on these products, especially if the price of essential goods increases.

Furthermore, a VAT increase will invariably prompt businesses to lay off staff, resulting in hundreds of thousands of workers being left without a job and a sharp increase in unemployment.  If, as expected, 200,000 jobs are lost, an additional £1.3 billion in job seekers allowance will be paid out if these newly unemployed people remain unemployed for 18 months, costing the country even more in payouts.  This also hurts families, but it probably hurts families more than an increase in prices.  Even if prices increase, if people are working they’ll just buy fewer products.  But a loss of income results in nothing being purchased, which lowers business revenue, and the cycle continues.

A Value Added Tax increase will add money to the government’s wallet, but at the expense of taking more from the public at large.  As the VAT increases, it results in smaller revenue for businesses.  Businesses making less money greatly impact the population in the form of higher prices, closed locations, a distressed workforce and increased unemployment.  The government deems that the higher unemployment levels are a small price to pay; but for the everyday family, the price is far too great to even imagine.

This along with the Cut In Corporation Tax is hoped to help stabilise the current economics.