Will we see another VAT rise this year?

GreggsVAT is a tax we pay without thinking about it, that is until 'pastygate' when the government tried to make us pay 20% more for our pasties, pies and sausage rolls.

The story of pasty tax has been well documented in the media as have the new rules, which state that we must pay more for a pasty that lukewarm and sitting on a hot plate than if it's fresh out of the oven or just cooling (no, I didn't get it either).Bakers up and down the country have heralded the U-turn on the pasty tax as a victory, but one lesser reported angle is the climb down could mean another VAT increase later in the year.

We've already endured a 20% rate of VAT since last January and Chancellor George Osborne made it clear before he increased it that it wasn't going to be temporary as it brings in an extra £13 billion each year.

The pasty tax was due to bump that figure up by £40 million a year, not an insignificant amount from Cornish pasties. And £40 million is not to be sniffed at by a government looking a monstrous deficit.

When it comes to VAT, we have to remember that Osborne never said that it wouldn't increase past 20% and George Bull, senior tax partner at Baker Tilly thinks that we will all have to fork out for the U-turn over takeaway food.

'With no upper limit on the standard rate of VAT, the autumn Budget may announce an increase to the current rate of 20%,' he said.

The International Monetary Fund has said Britain should cut VAT temporarily if the our recovery stalls but the coalition is not one for putting money into people's hands – let's remember that we are currently taxing our way out of recession, not spending out of it.

A 22.5% VAT rate is not inconceivable but there is a concern that in trying to recoup the money lost through the U-turn prices across the board rise, inflation is pushed up again just when we thought it had peaked, and families are once again struggling to cover their day-to-day costs.

At the moment we are trying to walk a thin line between cutting the deficit and making sure families aren't stretched even further. Only one thing is certain, we won't be enjoying a cut in the rate of VAT anytime soon.

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