VAT Increase

Scottish Executive Question Time — General Questions – in the Scottish Parliament at 11:40 am on 1st July 2010.

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Photo of Peter Peacock Peter Peacock Labour 11:40 am, 1st July 2010

To ask the Scottish Executive what it considers the impact will be on Scotland of the VAT increase announced by the United Kingdom Government. (S3O-11187)

Photo of John Swinney John Swinney Scottish National Party

The 2.5 percentage point increase in VAT that was announced by the Chancellor of the Exchequer last week is estimated to cost the average Scottish household approximately £380 per year. The lowest-income households are estimated to be disproportionately affected by this regressive tax increase.

The VAT increase will also increase costs facing Scotland's public sector. Initial estimates place the full-year costs at £7.2 million for the core Scottish Government, £26 million for the national health service in Scotland, £3.8 million for the Scottish Prison Service, and £700,000 for Historic Scotland.

Photo of Peter Peacock Peter Peacock Labour

That is indeed shocking news. Does the minister share my dismay that, having campaigned against VAT increases—and a secret plan that the Tories had—the Liberal Democrats have now put up the level of VAT to 20 per cent?

I recognise what the cabinet secretary said about the disproportionate effect on the lowest-earning 10 per cent of families in this country. What impact does he think the VAT increase will have on them?

Does the cabinet secretary recognise that the measure will also push up petrol prices in rural areas—something else that the Liberal Democrats promised to reduce?

Photo of John Swinney John Swinney Scottish National Party

Mr Peacock's final point on the impact of VAT on fuel prices is entirely factual. Those of us who represent rural Scotland in particular are entirely familiar with the scale and burden of fuel costs. The overwhelming majority of the cost of a litre of fuel is related to taxation.

On the impact on households, the VAT increase is equivalent to approximately 1.7 per cent of the net income of the poorest 20 per cent of Scottish households. For the highest-income 20 per cent of households, the VAT increase is equivalent to approximately 1.2 per cent of net income. The statistics clearly demonstrate the impacts in that respect.

Photo of Jeremy Purvis Jeremy Purvis Liberal Democrat

Is the cabinet secretary working with the United Kingdom Government with regard to what will be the first rural fuel discount pilot scheme in 14 years and its possible application in Scotland?

Has the Scottish Government calculated the net impact on the average household and family of the VAT increase, along with the other measures that were announced in the budget, including lifting the tax threshold by £1,000, restoring the link with earnings for pensions and making available child tax credits for the lowest-income families? What is the net effect on the average household in Scotland?

Photo of John Swinney John Swinney Scottish National Party

Mr Purvis will know that I raised the issue of fuel taxation in correspondence with the chancellor in advance of the budget. We would be delighted to work with the United Kingdom Government on developing the arrangements, as it is the policy position of this Government to act to ameliorate the effects of high fuel prices in rural areas.

The Scottish Government has not completed a comprehensive assessment of all the budget measures that were announced by the chancellor and their application to households, but I would be happy to do so and to identify the impact of all those measures on Scottish households.