Lib Dems push for tax cut as inflation predicted to add £40bn to VAT bill

Party analysis of official figures shows that the Treasury will receive a VAT windfall of £38.6bn over the next four years.

The Liberal Democrats are campaigning for a tax cut after calculating that the Treasury will pocket almost £40 billion in extra VAT receipts due to soaring inflation.

Party analysis of Office for Budget Responsibility figures shows that Chancellor Rishi Sunak will receive a VAT windfall of £38.6 billion over the next four years, with working households facing a £428 higher VAT tax bill in 2022-23 alone due to rising shop prices.

Lib Dem leader Sir Ed Davey plans to put the cost-of-living crisis “at the heart” of the party’s local elections campaign, officials said.

The Lib Dems are calling for an emergency cut to VAT, slashing the top rate from 20% to 17.5% for one year, a move they predict would save families an average of around £600.

They say the plans would give a boost to struggling high street businesses by encouraging spending, and help keep inflation under control by reducing prices in the shops.

Citing calculations by think tank the Resolution Foundation, the party said the rising VAT bill comes on top of Conservative manifesto-busting tax increases by the Chancellor, with the income tax threshold frozen and national insurance set to rise by 1.25 percentage point on Wednesday.

The fiscal measures will leave a typical family £535 a year worse off, even before the extra VAT pinch is felt, according to the Lib Dems.

Speaking ahead of launching the party’s local election campaign in south London on Wednesday, Sir Ed said: “Families are facing soaring energy bills and desperately need a tax cut to help them make ends meet.

“But instead of helping, the Conservatives are breaking their promises by raising taxes again and again.

Chancellor Rishi Sunak will have almost £40 billion extra in the Treasury coffers over the next four years due to inflation pushing up VAT receipts — Chancellor Rishi Sunak will have almost £40bn more in the coffers over the next four years due to inflation pushing up VAT receipts, the Lib Dems have calculated (Kirsty O’Connor/PA)

“These elections are an opportunity to send a message to this Conservative Government that they can’t afford to take people for granted any longer.”

He added: “We will fight for a fair deal that puts money into the pockets of struggling families through an emergency tax cut.”

The Lib Dem local elections offer will include proposing a sewage tax on water companies to fund the clean-up of Britain’s rivers.

They also want to establish a national community ambulance fund to allow ambulance trusts to reopen ambulance stations and cancel planned closures.