Bill Sedat Frater is an entrepreneur with several London-based businesses.
Tax policy reform isn’t the most riveting topic. But we need to have a national conversation about it – especially during an election where the tax burden is at its highest since the Second World War. As well as phasing out national insurance and the unfair double taxation of work, one of the steps we can take to improve this situation is lowering VAT.
VAT is a consumption tax levied on goods and services at each stage of production or distribution, with consumers ultimately bearing the burden. It is widely regarded as an effective and fair tax, but that doesn’t mean we should be keeping it high, especially as the UK economy struggles to recover from the war in Ukraine, disrupted supply chains, and the rippling effects of Brexit.
As most economists would note, reducing VAT will stimulate consumer spending. Lowering the tax burden on goods and services makes them more affordable for consumers, increasing perceived demand. This stimulates production and economic activity across various sectors. For a consumption-driven economy like the UK, this can translate into tangible economic growth – growth that we desperately need to continue.
Lowering VAT rates will enhance competitiveness and support businesses, especially small and medium-sized enterprises (SMEs). High VAT rates can act as a barrier for businesses, particularly those operating in price-sensitive industries such as retail and hospitality – a sector I know well, owning and operating a London-based restaurant and creperie.
By reducing VAT, businesses like mine can lower their prices, boost sales, and improve their profitability. We need to foster entrepreneurship and innovation, two ingredients that are vital for sustained economic growth. Inflation may be coming down thanks to global pressures, but to ensure long-term competitiveness, we need comprehensive reforms.
Moreover, reducing VAT on sales will lead to job creation across various sectors of the economy, reducing unemployment rates and improving overall economic well-being. Combined with a firm commitment to attracting the skills we need and upskilling our workforce, a buoyant labour market and rising salaries will further fuel economic growth.
Critics of such a policy might argue that it will lead to revenue losses for the Government, potentially exacerbating budget deficits when the public sector is already feeling the squeeze. However, it’s crucial to recognize that the economic stimulus resulting from increased consumer spending and business activity can generate additional tax revenue through other channels, such as higher income tax receipts and corporate taxes.
Moreover, the potential long-term benefits of a vibrant economy, including higher productivity, innovation, and competitiveness, far outweigh any short-term revenue implications. It would be short-sighted to maintain public sector spending at current levels. What we need from both the Conservatives and Labour are long-term strategies to provide stable and attractive places to start businesses, which will benefit all of us in the long run.
Fear of making the necessary changes to prioritise growth has led us to the position we’re currently in, as a clip of Nick Clegg discussing nuclear power back in 2010 so brilliantly encapsulated. If we don’t make these changes now, we never will, and the attractiveness of the UK economy will continue to slide while other countries outpace us.
We need to get serious about growth, and with the general election taking place on 4th July, now is the time to make bold but necessary decisions for our country’s future. Both Labour and Conservative politicians should commit to a sustainable but impactful cut to the tax burden, and cutting VAT is a great place to start.
