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'Increase' VAT to cut public finance gap

The government should consider a rise in the rate of VAT as a way of closing the gap in public finances.

The recommendation came from the Oxford University Centre for Business Taxation.

In its pre-Budget Report proposals, the centre argued that it is too soon in the recovery to consider radical reductions in public spending or significant increases in taxation.

The risks of hampering recovery outweigh those of delaying efforts to combat levels of government borrowing, the centre said.

However, the centre went on to say that, in the longer term, a hike in VAT would help to tackle the budget deficit.

It proposed holding back on the rise until 2012. This would encourage consumers to spend in the meantime, so boosting growth, while also indicating that the government had plans in place to deal with the country’s indebtedness.