CPA: VAT rise could hurt recovery

he Construction Products Association has warned that an increase in VAT could damage the UK’s fledgling economic recovery.

The CPA warning comes at the same time as a survey of leading economists used by the Treasury forecast that VAT will rise in the new parliament. A BBC poll of the economists revealed 24 of the 29 expect the rate to rise from its current level of 17.5% to 20%.

CPA external affairs director Simon Storer said he welcomed the formation of the Conservative/Liberal coalition but appealed to the new adminstration to avoid increasing the level of VAT.

He said: “Clearly there is a need to realign the nation’s finances but additional taxes are not the answer. Construction, which accounts for about 10% of GDP, is still in recession and it’s likely to remain so for the rest of this year and a rise in VAT will not help.”

He added: “We want to keep materials manufacturers based in this country and that can only be achieved if we create an environment that is good for business, with good transport infrastructure, a good planning system and a beneficial tax regime for businesses.”

City economists estimate that increasing VAT to 20% would bring an extra £11.5bn a year into the public coffers.

Chancellor George Osborne is due to unveil an emergency budget, which would feature changes to VAT and other taxes next month.

Although both the Conservatives and the Liberal Democrats said they had no plans to raise VAT when questioned during the election campaign they stopped short of ruling it out completely. Both parties also steadfastly refused to rule out tax rises.