Vol. 437 No. 6
151 Mr. Cox asked the Minister for Finance the cost to the Exchequer for each 1 per cent reduction in the standard rate of VAT and in the lower rate of VAT in gross and net terms from 6 April 1994 to 31 December 1994, and in a full year.
For practical and administrative reasons, increases or decreases in the rates of VAT are implemented at the start of a taxable period. If rates of VAT are changed in a January Budget such changes would generally be implemented on 1 March of that year. Accordingly, the costings requested by the Deputy have been prepared on this basis.
The cost to the Exchequer of reducing the standard rate by 1 percentage point is estimated at £54 million in 1994 and £87 million in a full year.
The current reduced rate of 12.5 per cent covers, on the one hand, certain goods and services (e.g. non-house building, labour intensive services and short term car hire) which, under EU law, cannot be reduced to below 12 per cent and, on the other hand, goods and services (e.g. housing and hotel accommodation) where no such constraint exists. The estimated cost to the Exchequer of reducing the former category to 12 per cent would be approximately £4 million in 1994 and £6.5 million in a full year; while the cost of a 1 per cent reduction in the latter category is estimated to be of the order of £25 million in 1994 and £40 million in a full year.
Forecast costings are prepared on a net basis only (i.e. taking account of deductability on business inputs) as gross forecasts would serve no useful purpose.
