While both the SME and company formation sector applauded the coalition government’s plans to address the budget deficit as a matter of priority, they are extremely concerned about the impact an increase in VAT will have on the already struggling high street, job market and consumer spending.
Retailers have warned the government that any increase in VAT will have a severe effect on the UK’s fragile economic recovery. However, when asked for an alternative to VAT increases many company formation owners cannot provide one.
Accountancy firm KPMG have commissioned considerable research into the impact raising VAT will have on the economy and initial results reveal that an increase in VAT even by as little as two per cent will cost Britain nearly forty thousand jobs, it will also prevent companies investing in their businesses and could initiate over twenty thousand companies going into administration.
Commenting on the research economist James Wilson says that there are other options;
“The figures while shocking are not surprising. What I expect the government considered when discussing VAT rises were the short term implications; a reduction in consumer spending and the fact that it will pose further challenges to the high street. However, what I fear they have not fully considered is the long term implications of job losses and the number of companies that will go into administration as a result.”
“If the government does go ahead with plans to increase in VAT they must offset it with plans on how to support small businesses and companies that have recently been formed.”