https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_8696ff19fd00a174ee9aab9fc7810653921e20057d72b17325aeb66a2cf551657b879c5e748d3480cc9379be55bed878b9a8802f6935958fcc061fd49c3e1f59.js
https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_50623f5be1cc3994ca23f13b8c3232da0a4a6c642cd37d7533b138d162a356da151f111fc90bb59d30fd2ebfe84aa30f8762c0bd402e3a61cacbf72760d4a23f.js
https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_a974bd4e6480297a069d5181728d595bafe302164377feddbbdb3da03517c235d76136a6bd56f55aba5f606d6d6d3e1a4c53b03c41f816067ad4995838495f94.js
https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_1ed3df173a5ac7d7855370950c4718f27351a3d059bbe679a9d85ad29a48dbcf157983a0e1bc9c7db89d817d357704878d31a6ddb581ef7463d2d7a6bbef7e25.js
Close Menu
    Facebook X (Twitter) Instagram
    Facebook X (Twitter) LinkedIn
    The Business TimeThe Business Time
    Subscribe
    • London
    • Business
    • Finance
    • Marketing
    • Technology
      • Auto
    • Education
    • Entertainment
    • Lifestyle
      • Travel
      • Food
    The Business TimeThe Business Time
    Home»Lifestyle»Is VAT The Key to Easing The Cost of Living Crisis?
    Lifestyle

    Is VAT The Key to Easing The Cost of Living Crisis?

    Ben WilliamsBy Ben WilliamsSeptember 13, 2022Updated:September 14, 2022No Comments5 Mins Read Lifestyle
    Cost of Living
    Share
    Facebook Twitter LinkedIn Pinterest Email

    Rarely a day goes by without headlines about the cost of living crisis, and for millions of Brits, it has had a catastrophic impact on their lives. With the prices of many everyday essentials (like food and bills) rising faster than household incomes due to rampant inflation, the crisis, which began in late 2021, has resulted in a fall in real income. Consequently, many are unable to afford the things they need day in, and day out. 

    The effects of this are stark, with a significant number of people regularly going without food and energy, and many having to take on debt to afford everyday necessities, putting them in financial difficulty. Not only has the cost of the living crisis resulted in a concurrent mental health crisis of  ‘pandemic proportions’, but some are predicting that people are ‘likely to die this winter’ because of the situation, as many become forced to choose between heating and food. 

    One solution suggested by some economists — in addition to the opposition — to help ease the crisis is to cut VAT in order to lower household costs. What are the merits of this approach, and could it be the key to helping millions of people get through the winter?

    Table of Contents

    • What is VAT?
    • VAT cuts
      • How could VAT cuts help with the cost of living?
    • The effect on businesses
    • Are there any drawbacks to this approach?
    • What alternative measures might be better?
      • Scrap the national insurance rise
      • Lower income tax
      • Increase Universal Credit
    • So, is VAT the key to easing the cost of living crisis?

    What is VAT?

    VAT stands for Value Added Tax, a general tax that’s applied to almost all goods and services in the UK. Certain kinds are exempt, however, including most supermarket food, medical supplies, and Post Office services. VAT is an indirect tax considering it is collected by businesses VAT on behalf of the government, which automatically adds it to the goods and services they sell. 

    The current standard rate of VAT is 20%, though certain goods and services enjoy a reduced rate of 5%, such as home energy and children’s car seats.

    VAT cuts

    A VAT cut can encompass a universal cut to all goods and services or a reduction in the rate for individual types. The most recent example of the latter type happened in 2020 when the VAT rate was cut from 20% to 5% for hospitality, tourism, and accommodation businesses in order to promote growth in these industries during the pandemic.

    How could VAT cuts help with the cost of living?

    The driving logic behind VAT cuts easing the cost of living crisis is simple: reducing the rate people pay on goods and services makes them cheaper, giving the public more disposable income. More broadly though, VAT cuts can drive spending in the economy and bolster output through the multiplier effect, as in theory, they’ll be more work for these producing goods and services, giving them more disposable income too. 

    VAT cuts are also fairly easy to put into effect and tend to be popular with the public, meaning they’re a quick win politically as well. 

    The effect on businesses

    It’s not just individuals that stand to benefit from VAT cuts, but businesses too, which are also struggling with the cost of living crisis. While companies don’t actually pay VAT themselves, many do so initially on goods and services before claiming it back from HMRC. However, it can take up to 30 days for this money to return, leaving them with a deficit. As tax credit specialist Adsum explain, many rely on loans to help them “bridge the gap”, however, interest on these loans can be high. By cutting VAT, businesses may not have to take out such loans, or even pay VAT at all if it’s removed completely. 

    Are there any drawbacks to this approach?

    Unfortunately, though, there are potential drawbacks to VAT cuts. One is that they could actually cause inflation to rise to see as increased demand for costs of goods and services can lead to prices going up. It’s also only a temporary fix, as when any VAT cut is undone, prices will likely surge, again leading to inflation. 

    In addition, businesses wouldn’t legally be obliged to pass VAT cuts onto the public as reduced prices, something that would cut into tax revenues, while the approach may also fail to benefit the right people if not targeted. 

    What alternative measures might be better?

    Some other ways the government could help ease the crisis include:

    Scrap the national insurance rise

    It was announced in April that National Insurance contributions were to be increased by 1.25% to 13.25%. By scrapping this, individuals could save hundreds of pounds a year, though this is dependent on what they earn. Prime Minister Liz Truss has already promised to introduce this measure in the future. 

    The main drawback of this solution, however, is that it would take away funding for the NHS and social care. 

    Lower income tax

    The government has promised to cut the basic rate of income tax from 20 to 19p in the pound before spring 2024. By bringing this forward though, it could put more money in the pockets of people right away. 

    That said, this move wouldn’t help the lowest income brackets who are below the threshold and don’t pay income tax, or those on fixed incomes, such as pensioners.

    Increase Universal Credit

    There have been calls by some to re-introduce the £20-a-week uplift in Universal Credit implemented at the beginning of the pandemic to help those on low incomes.

    This move would certainly provide direct, targeted help, but it’s unclear whether the government would introduce this. 

    So, is VAT the key to easing the cost of living crisis?

    All in all, it appears that VAT isn’t the key to easing the cost of living crisis, but it certainly could provide some spending relief to the public. Perhaps the most logical solution would be to introduce targeted VAT cuts for necessities like energy bills, a suggestion put forward by Labour in January 2022. 

    Inflation Price Hike
    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    Previous ArticleConveyor Systems Market Will Increase Despite Manufacturing Woes In The UK
    Next Article Open a Business on a Dump Truck
    Ben Williams

      Related Posts

      Reducing Stress for Better Health and Well-being

      June 16, 2025

      Francisco Javier D’Agostino, cleared by OFAC, removed from U.S. sanctions list after no Maduro ties found

      June 9, 2025

      Take the Stress Out of Writing: Expert Paper Writing Services for Your Success

      May 20, 2025
      Latest Post

      Online Casino Trends and Features: What Gives the Upper Hand to Crypto Casinos

      June 17, 2025

      Reducing Stress for Better Health and Well-being

      June 16, 2025

      Where to Spend Your Upcoming Vacation: The 2025 Hot List of Cities to Visit

      June 16, 2025

      The Ultimate Guide to Branding in 2025

      June 12, 2025

      Mentorship: 3 Tips on How to Do It Right

      June 10, 2025

      Steps to Launching Your Own Software Company

      June 10, 2025

      Francisco Javier D’Agostino, cleared by OFAC, removed from U.S. sanctions list after no Maduro ties found

      June 9, 2025

      3 Simple Tips for Creating Buzz for Your Brand

      June 7, 2025

      Car Financing Advice for the Self-Employed

      June 7, 2025

      Take the Stress Out of Writing: Expert Paper Writing Services for Your Success

      May 20, 2025
      About
      About

      Welcome to The Business Time – UK’s Leading Business Magazine. We are a UK-based business magazine that covers all trending and relevant business stories around UK.

      Facebook X (Twitter) LinkedIn
      Latest Post

      Online Casino Trends and Features: What Gives the Upper Hand to Crypto Casinos

      June 17, 2025

      Reducing Stress for Better Health and Well-being

      June 16, 2025

      Where to Spend Your Upcoming Vacation: The 2025 Hot List of Cities to Visit

      June 16, 2025
      Quick Links
      • London
      • Business
      • Finance
      • Marketing
      • Technology
        • Auto
      • Education
      • Entertainment
      • Lifestyle
        • Travel
        • Food
      © 2025 The Business Time.
      • About Us
      • Privacy Policy
      • Write for us
      • Contact us

      Type above and press Enter to search. Press Esc to cancel.

      We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
      Cookie settingsACCEPT
      Manage consent

      Privacy Overview

      This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
      Necessary
      Always Enabled
      Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
      CookieDurationDescription
      cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
      cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
      cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
      cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
      cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
      viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
      Functional
      Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
      Performance
      Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
      Analytics
      Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
      Advertisement
      Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
      Others
      Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
      SAVE & ACCEPT
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_2cbc0bded7ad31701db2d10684d00c8f3ca4f057eae1881978f8d66d1a8c6ae439d60213b645297a36ca792350523d0f4f7a997a7fd50a2239b8691ee0ea74c8.js
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_8248e7841862fa0d2de8dc18a21907f6b387d36fd7359f282382ccd5837c5a35281e12be1000ddff6bd54b47af35ee2344e941e51bbdd1a4f0b0004b66aa294c.js
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_b3445612f00e6a6f84a3fd3d59376d1b7fbb3031627415114f052e3d637eab6145cdc63e947e68492ca77d5d6d8e3bcc0827d269223f005b3fe1405e978f9ce0.js
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_22c361e44dde632dedaff2625f6631e2fb02ba3b6487097b48baa09f02cd81fd381ebb7d053f525e52e56655b1f8e2b89ddcc0a002e1b0c35c0a6920823641d7.js
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_4cf9cbd697a626e664443cdb20fad0eee1226995f637cf6e88715f76459de99fee684a9363324f9362be0f439c317e1cfdb7b0eaae09046b3dac3d8a48e600a5.js
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_ff091473f5de3037237c4a75a04fd03026c362a8690e43f9e8b4faa4b16c088ab9f42983965adde4c4a08c1a3de1c2b68b006824fb1cf8697a637f80adfe9305.js
      https://thebusinesstime.co.uk/wp-content/cache/breeze-minification/js/breeze_74120ddd3be549e5ab35c7d4b17d5b655b4e063d4720fbbfc400eb981775bc8c26eb61945936b581aaa07668da9fff1ae9a88b18307b51b00df0a7eafe456a95.js