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VAT should apply to more goods, says think tank

The current system of Value Added Tax is overly complex and should be simplified, with the tax applied to more categories, says a report by the Institute of Fiscal Studies.

It says that the move would simplify indirect taxation and raise money which could be spent on cutting income taxes and raising benefits.

Some of the other suggestions set out in the review include:

  • merging income tax and National Insurance contributions

  • making all interest on savings tax-free – as is currently the case with cash Individual Savings Accounts (Isas);

  • overhauling environmental taxes including a consistent price put on carbon emissions and a system of congestion charging on roads to replace most of the fuel duty charges

  • changing corporation tax to encourage investment funded by equity rather than by debt.

    Many items including domestic gas and electricity attract VAT at a rate of 5% instead of the more usual 17.5% (205 from January) while others, such as new housing, children’s clothing, food and books are taxed at 0%.

    Extending VAT to most spending would “reduce complexity and avoid costly distortions to consumption choices”, the report said.

  • About Fiona Russell-Horne

    Fiona Russell-Horne
    Group Managing Editor across the BMJ portfolio.

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