Paul Grant, Accountancy Age, Friday 14 May 2010 at 09:44:00

Rise in VAT rate seen by City as vital to cut deficit

Economists have warned that VAT may have to rise to 20% if the UK is going tomake significant inroads into the budget deficit.

In a bid to restore market confidence, which feels the measures outlined sofar by the new government will not do enough to tackle the debt problem,economists expect to see a significant hike in the VAT rate.

A rise to 20% would cost each household 425 but could be introduced withoutbreaking Conservative or Liberal Democrat manifesto pledges, reports theGuardian.