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VAT rise still looks set for end of December

Treasury plans to increase the rate of VAT to 17.5 per cent at the end of the year appear certain to go ahead.

Business groups have been lobbying the Chancellor either to extend the current reduced rate of 15 per cent or to choose another, less busy trading date on which to switch to the old standard rate.

However, it has been reported that Alistair Darling, who was attending a private business meeting in Norwich, has confirmed that VAT will rise, as planned, at midnight on New Year’s Eve.

It is estimated that the temporary cut in VAT has been costing the exchequer as much as £1 billion a month in income.

The Chancellor introduced the reduced rate as way of helping to stimulate high street activity during the economic downturn.

Business groups have expressed concerns that not only will the scheduled date coincide with the year’s busiest trading period, so adding to administrative costs, but that it will also hit many businesses that are still struggling to cope with the recession.

A Treasury spokesman said: “The Government’s intention has always been that the rate of VAT will return to 17.5 per cent from 1 January 2010. This was made clear both in the Pre-Budget Report when the reduction in VAT was announced and was confirmed in the Budget this year.”