VAT is to increase to 20% as from 4 January next year, the government revealed today in its emergency budget.
The Chancellor George Osborne said the increase was needed, as it would help generate an extra £13bn per year by the end of the current parliament.
Osborne described the increase as “unavoidable” following years of debt – but said staple items like food and children’s clothing would remain exempt for the remainder of this parliament.
The duty escalator on alcohol remains for the moment, though Osborne said the government would look at the taxes on products that most account for binge drinking again in the autumn.
He also announced that the 10% above inflation increase on cider, which was unveiled in the last Budget in March, would be reduced by the end of this month.
The British Beer and Pub Association (BBPA) had previously warned that such an increase would see the cost of a pint increase by 6p per pint and lead to loss of 7,000 jobs.
Other measures announced by the Chancellor included:
· A cut in Corporation Tax, down from 28% to 24% in the next four years
· Small Company Corporation Tax will be reduced to 20% by 2011
· A higher threshold for company NI contributions
Brigid Simmonds, British Beer & Pub Association chief executive, said she welcomed a decision to freeze beer tax.
She said: “A beer tax freeze will also help the beer and pub sector’s ability to play its part in contributing to much needed economic growth and generating valuable private sector jobs.
“The VAT rise is a price to pay for tackling the deficit and bringing Britain’s balance sheet back in order. This tax increase is not welcome, but is understandable and applies to everybody. We hope this will be short-term pain for long-term gain.
“Once the nation’s finances are back on a more even keel, we look forward to VAT rates returning to more favourable levels. We also look forward to the promised review of our alcohol tax system tax as an opportunity to rebalance our tax system to one that is more fair towards community pubs and our national drink - beer.”
Mike Benner, Campaign for Real Ale chief executive, said: "In the New Year, many pub goers will be hit with a VAT increase that will push up the combined taxation on a pint of beer to over a pound.”
But he added: "The announcement of a review into alcohol pricing and taxation this Autumn gives the government an opportunity to avoid the harm that this VAT increase will impose on pubs.
"CAMRA will be pressing for targeted measures to support well-run community pubs. These measures could include a new class of business rate relief for community pubs and a compensatory reduction in beer duty."
Jeremy Beadles, Wine & Spirit Trade Association chief executive, said: "Today's announcement provides some relief for a sector that has faced substantial tax increases in recent years and I welcome the Chancellor's decision.
"Repeated tax hikes have produced less revenue for the Treasury and punished responsible drinkers, while failing to tackle the problem of binge-drinking."
Nick Bish, ALMR chief executive, said: “The industry will be relieved that it was spared any particular attention from the Chancellor and although the VAT increase is swingeing it is no more than was widely forecast. But our customers will certainly have less money in their pocket so the task of competing for their business will be more acute than ever.”
He added: "And we notice that the VAT-driven differential between the price of a pint from the supermarket and across the bar counter is yet again widened.
“The focus of our lobbying with government is now to seek relief from regulatory interference and red tape.
"We can take our share of the general debt reduction burden and we will contribute to employment and to the prosperity of small businesses, but only on the basis that pubs and bars and restaurants are given room to succeed. We are definitely part of the solution.”
David Coffer, of Davis Coffer Lyons (DCL), welcomed the government’s plans on corporation tax and CGT but warned that the increase of VAT to 20% would impact consumer spending.
He said: “This will make consumers think twice about those discretionary purchases that they usually wouldn’t bat an eyelid about. The likes of a McDonald’s or a coffee on the way to work could be the type of purchases that are affected.”
