George Osborne said the VAT rise was more progressive than increasing income tax The increase in the top rate of VAT is a “tough but necessary” step towards restoring the UK’s economy, Chancellor George Osborne has said.
The rise from 17.5% to 20%, which came in on Tuesday, is expected to raise an extra £13bn in revenue.
Mr Osborne told the BBC this was more “progressive” than increasing income tax or National Insurance and would “increase employment”.
But Labour said the VAT rise would “hit the poorest hardest”.
Business groups have also warned that retailers will be adversely affected.
The VAT rise is the second in a year, after Labour chancellor Alistair Darling restored the 17.5% rate last January having temporarily reduced it to 15% for 13 months to stimulate the economy during the recession.
Mr Osborne said: “I didn’t come into politics and become chancellor of the exchequer wanting to increase taxes. I’m actually someone who believes we want to try and lower taxes in this country.
“But when you’ve got a very large budget deficit and you’ve in the middle of a European sovereign debt crisis – and you’ve decided that at least part of dealing with the deficit has to come from tax rises – then I think VAT presents itself as the choice.
“And interestingly enough of course, my predecessor – Alistair Darling – came to exactly the same conclusion, wanted to increase VAT in office and made it very clear after the election that he would have increased VAT had he remained the chancellor.”
He added: “If you look at the population and how much they spend, then VAT is progressive.”
Mr Osborne also said the VAT rise was a “tough but necessary step towards Britain’s economic recovery”, and that 20% was “a reasonable rate to set, given the very difficult situation we find ourselves in”.
He added that he regarded the increase as “permanent” and it would “increase employment” because it would increase confidence that the government was tackling the budget deficit.
For Labour, shadow chancellor Alan Johnson said: “This is a broken promise – this was the big issue of the general election campaign.
“It does nothing for jobs and growth – this year has to be all about continuing the growth momentum. It hits the poorest hardest. For those three reasons this is the wrong tax at the wrong time.”
The change affects any VAT-registered business which sells or purchases goods or services that are subject to the standard rate.
Food, children’s clothing, newspapers and magazines are not subject to VAT.
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