20% VAT will cost 200,000 jobs
20% VAT will cost 200,000 jobs says Ortus!
This will cost the current benefits system approximately 1.3bn
Forecast from HR recruiter Ortus suggest the increase in VAT from 17.5 per cent to 20.0 per cent will cost the country approximately 201,000 jobs. Ortus says there are significant effects on employment associated with changes in VAT. These can be estimated in several ways: in more sophisticated methods, using economic modelling, a 1.0 per cent increase in the average VAT rate in the Netherlands led to a loss of 20,000 jobs approximately 0.3 per cent of the Dutch workforce (7,750,000 people).
Using the same model, the UK can expect more than 200,000 job losses from The Budget. Assuming these 200,000 people all claim job seekers allowance (between 100.95 per couple and 64.30 per individual every week), and remain unemployed for 18 months, this will cost the country approximately 1.3bn in benefits. But it could have been worse. A larger increase, taking Britains VAT to 25.0 per cent - similar to the levels in Denmark, Hungary or Sweden - would have cost more than 600,000 jobs and 3.9bn in benefits. Stephen Menko, UK Director of Ortus said, Previous studies conducted in other European states suggest we can expect over 200,000 job losses from the VAT increase. The Chancellor may well feel that a price worth paying but it certainly wont be without its costs. The only way to reduce job losses significantly would have been to decrease other taxes, which is an option the Chancellor didnt have.
At least George Osborne stopped at 20.0 per cent. The EU allows members to increase VAT all the way up to 25.0 per cent. As VAT is the third largest source of government revenues, were lucky the Chancellor didnt view an increase to 25.0 per cent as a very attractive option.