The cost of most things we buy including fuel, clothes, some food and energy could be reduced with a cut on VAT, according to reports. Boris Johnson's chief of staff Steve Barclay has suggested reducing VAT from 20% to 17.5%, reports The Times.
The move could reduce the prices we pay in shops, forecourts, restaurants and to other businesses and would cost the Government £18billion.
The Prime Minister has repeatedly promised to cut taxes and a change in VAT is reported to be one option under discussion.
The Times has been told that Mr Barclay raised the idea of cutting the tax during discussions with the Treasury. A source said: “Steve’s been pushing it quite strongly but the Treasury is not buying it.”
Paul Johnson, head of the Institute for Fiscal Studies, told The Times: “It would reduce inflation in the short run because it would reduce prices relative to what they would have been. But it would increase inflation next year. It can’t help in the long run."
Labour cut VAT to 15% after the 2008 financial crisis. The Conservatives then raised it to 20%.
