Scrap VAT exemptions and cut tax on employment, urges think-tank

The government should broaden the VAT base and scrap planned tax increases on income and employment if it is to reduce the deficit without hindering economic recovery, according to a think-tank.

Reform said that by eliminating exemptions on VAT, apart from for the poorest third of British households, enough would be raised to allow the abolition of the 50p tax rate and the introduction of a 0.5% cut in National Insurance contributions (NICs), reports the Daily Telegraph.

The think-tank suggested that all three major political parties were committed to “the most economically damaging tax rises”, including a planned increase in employer NICs by one percentage point from April 2011.

Andrew Haldenby, director of Reform, said: “Tax rises are a necessity given the state of the public finances. But job-killing taxes on employment and growth are the worst possible way to go about it.

“If politicians can find the courage to eliminate the zero rate exemptions in VAT, they can actually cut taxes on jobs while still reducing the deficit.”

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Reform said that its measures would mean that households with incomes of less than £17,000 would, on average, see a tax reduction from lower NICs and protection from the broader VAT base.

Employers’ groups have described the planned rise in NICs as “madness” and a “tax on jobs”.