Reports indicate the government is considering a temporary cut in VAT to stimulate consumer demand, possibly targeted at sectors such as tourism and restaurants. Overall the case for a temporary VAT cut now is mixed. It could provide an important fillip to consumer demand if implemented under the right conditions. Its expiration must be carefully timed so as not to choke off a nascent recovery.
The tax and benefit system has undergone significant reform since 2010, with large cuts to working-age benefits, a rise in the main rate of VAT, increases in the rate of the state pension, and reductions in direct tax, including a big rise in the income tax personal allowance. In this briefing note we investigate the impact that these reforms have had on household incomes.
Do tax systems distort firm-to-firm trade? Using data from both firms that do and don’t pay VAT in West Bengal in India, this paper shows that they can have significant effects, contributing to highly segmented supply chain networks.
The UK raised 35% of national income in tax in 2018–19. Figure 1 shows that tax as a share of national income has fluctuated between around 30% and 35% of national income since the end of the second world war and been rising since the early 1990s. Tax revenues are now, just, higher as a share of national income than at any point since the late 1960s.