LONDON - The United Kingdom’s coalition government presented its first budget to the House, and announced that it will increase the standard rate of Value Added Tax (VAT) from 17.5% to 20% from January 2011, as part of the government’s fiscal consolidation.  

The austerity measures, which intend to contain Britain’s budget deficit, also include a 3-year freeze on child benefit, public sector pay freeze for 2 years, among others.

“The year of debt and spending made this unavoidable. The single tax measure will, by the end of this Parliament, generate over £13 billion a year of extra revenues,” said UK Chancellor George Osborne when he made the announcement at the Houses of Parliament.

The new budget is expected to balance books by 2015 but some Britons are not optimistic.  

“Everyone is struggling now but the struggle will be a little bit more because clothes will cost more, food products will cost more, import and export will be more, just general household bills will be more. Travelling will cost more,” said Matt Williams. a client adviser by profession.  

Pinoys in the UK capital are mostly affected by the news about the increase in VAT to 20% by 2011, especially that it will affect the prices of some basic commodities.

Some food products and clothes are VAT-exempt. Many food products that are not considered luxury foods and items will remain exempt from VAT. But packaged and processed food and non-food items such as cleaning products will increase-- some of the supermarket items that Pinoys consider essential in their weekly shopping.

“I hope ang food ay di taxable, although some food like chocolates kasi luxury. Siyempre maaapektuhan tayo kasi kids love ice cream so if you have a family, that’s a big deal,” said Elvie Caparos, who works at the accounts section of Naverly Hotel.  

“At the moment, nag-struggle na tayo with the 17.5. How much more with the 20%? So it will affect, especially our business with the travel agency,” said Allen Abeleda, Finance Director of Celestial Travel.

But some Filipinos are supportive of the government initiative aimed at rescuing the UK economy.

“With the situation now, I know this is the necessary evil we have to take. If this is the only way to shorten the impact on job losses and economic downturn, I’m more than willing to go for it,” said Ricardo Gacayan of the Westminster Council.
 
Junjun Vinluan, a businessman said: “It’s not as bad, as long as it will help the economy overcome the recession.”

With tax increase and budget cuts, the UK economy is projected to grow by 1.2% this year and 2.3 in 2011. The 20% VAT is expected to raise £13 billion a year of extra revenues.