The SNP has called for the UK Government to delay the hike in VAT from 17.5% to 20% to ensure business and the economy can recover from the effects of the severe winter. The party claim that the VAT rise could cost Scottish households around £590 a year.
The party’s Treasury Spokesman Stewart Hosie has warned that the planned rise scheduled for the start of next year will threaten the boost received from the January sales and will harm retailers and manufacturers who were hit by the severe weather over the last few weeks.
The Dundee East MP also warned that the VAT hike could hit the economic recovery and might also risk a double dip recession.
Mr Hosie said:
“The Tory Government should give Scottish and UK businesses a break and push back the VAT rise.
“I opposed the VAT increase in June and I am still opposed to it now. Increasing VAT will take money out of our economy at the worst possible time.
“The VAT rise put recovery at risk before the severe winter conditions set in, now it puts that recovery in real danger.
“Businesses need time to clear backlogs, get their orders out to customers, catch up on lost demand or in the case of retailers the opportunity to make up lost ground through the January sales.
“Hospitality businesses lost out considerably in December and will want to reschedule festive celebrations for the New Year. Their customers should be able to enjoy a belated Christmas lunch at pre –VAT rise prices.
“For households and families rising fuel and energy bills are doing real harm to household budgets. Hitting them with a hike in VAT will only make the poor poorer and the situation worse.”
Mr Hosie argued in a letter to the chancellor that the rise should be held back until spring adding:
“Imposing a 2.5% increase in VAT on January 4th will damage that recovery from winter and leave business and consumers facing unprecedented challenges. The VAT rise should be pushed back till spring so the economy can get a spring back in its step.
“Government should help business recovering from the recession not hinder it and with the winter having a severe effect on Scotland and the UK’s economy the Tories should give business a break and delay the VAT rise.”
Mr Hosie’s letter is reproduced below
You cannot help but be aware of the serious challenges the recent bad weather has brought for businesses of all kinds in Scotland and across the UK.
Problems with delivery, staff shortages due to weather conditions, lower than expected sales and cancellations have affected all aspects of our economic life.
Households are facing significant energy and fuel costs that are having drastic effects on household budgets and will only be worsened by a VAT rise.
Insurers RSA have estimated the cost to the UK economy at over £1.2 billion a day and over £53 million a day in Scotland.
As you will know many businesses and business organisations have considerable concerns about the impact of the VAT rise scheduled to come into force on January 4th.
I have opposed the VAT rise from its inception. I remain opposed to it, however Parliament voted for the rise and it is now incumbent on us to ensure it has the least possible negative impact on our economy.
There have been repeated warnings that the VAT rise in taking money out of the economy and suppressing demand could lead to an economic downturn or perhaps a double dip recession.
For business the early months of 2011 will be critical in recovering the lost revenue and sales as a result of December’s bad weather. There is also the prospect of continuing severe weather in January. The VAT rise will undermine those recovery efforts and in many cases will results in goods and services that would and should have been purchased, delivered or invoiced in December being carried over into January and therefore incurring a higher rate of VAT.
I note some of our larger retailers – eg ASDA – are intending to absorb the VAT rise. This option will not be open to smaller retailers, suppliers or manufacturers. It may be that large retailers expect their suppliers to absorb VAT on their behalf.
In order to ensure a level playing field and provide business with the best possible opportunity to recover from the severe weather, to get 2011 off to a strong positive start and to continue growth in our economy rather than push the UK and Scotland into a double dip recession I urge the UK Government to review the 2.5% rise in VAT in light of the recent bad weather and postpone it for six months to ensure business can recover rather than push the country towards a double dip recession.
Stewart Hosie MP