§ Lord Harris of High Cross
asked Her Majesty's Government:
What would be the effect on the cost of living index of imposing VAT on all excluded goods and services (except rent and interest payments):(a) at 5 per cent.; (b) at 10 per cent.; and (c) at 17.5 per cent.; and
What revenue would be gained by the Exchequer by imposing VAT on all excluded goods and services (except rent and interest payments): (a) at 5 per cent.; (b) at 10 per cent.; and (c) at 17.5 per cent.
§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
HM Treasury'sTax Ready Reckoner and Tax Reliefs estimates the revenue cost of zero-rated or exempted goods and services is approximately £20 billion in 1996–97. This assumes a VAT rate of 17.5 per cent.; the cost of intermediate rates can be approximated pro rata. The estimate excludes the reduced rate on domestic fuel and power. It also excludes the effect of behavioural changes and will therefore tend to overestimate the extra revenue from withdrawing exemptions or zero rating. The estimated RPI impact is around 1 per cent., 2 per cent. and 3 per cent. for VAT rates of 5 per cent., 10 per cent., and 17.5 per cent., respectively.