Ed Miliband slams VAT hike

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Today sees the standard VAT rate rise from 17.5% to 20%. The 2.5% increase means that tax freedom day is three days later in 2011 on 30 May.

Chancellor George Osborne called the increase "tough but necessary" when he unveiled the hike in the coalition government's emergency budget. He also said that the increase wasn't temporary.

However, opposition leader Ed Milliband has slammed the VAT rises, claiming "this is the wrong tax at the wrong time".

For more on VAT read: VAT rises to 20%


In a speech to Labour activists at the Oldham East & Saddleworth by-election, the Labour leader accused the government of unfairly profiting from a tax that impacts on so many areas of life: "The squeeze designed in Downing Street will come to your street, to the High Street, to every street up and down this country.

"They will be taxing you with higher VAT when you fill up your car. They will be taxing you when you phone home on your mobile. They will be taxing you higher when you go out and get a cup of coffee.
And when you pick up a DVD for the kids on the way home they will be taxing you."

With consumers taking into account the VAT increase and reigning in their spending accordingly, retailers fear falling sales in 2011. Nearly two thirds of retailers expect sales to drop off in 2011, according to the British Retail Consortium's (BRC) 'Retail Prospects' survey.

Stephen Robertson, director general of the BRC, says: "They [retailers] believe the VAT rise will contribute to higher prices and, with fears about government cuts and the wider economy, people will be put off spending,"

While retailers may be able to absorb the VAT hike with bumper January sales, they won't be able to do so indefinitely, says BRC economist Richard Lim. "Retailers can't absorb the cost indefinitely. In time, the VAT increase will push inflation up and – along with National Insurance rises and public sector job losses – harm sales as the year continues," he adds.

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