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Shadow Chancellor, Ed Balls, has called for an emergency reduction in Value Added Tax, as official statistics reveal that retail sales have dropped by more than three percent over the past year. VAT rose to 20 percent in January 2011, up from 17.5 percent. Mr Balls said:

“Slowing down the pace of deficit reduction with a temporary VAT cut now would give the flat-lining economy the jump-start it so urgently needs, boost jobs and be a better way to get the deficit down for the long term.”

Ed Balls has stated that the previous governments decision to cut VAT to 15 percent for 13 months was an effective decision, which is backed up by the Institute for Fiscal Studies. Small businesses play a key role in the growth of the economy, and Welsh businesses have expressed continuing concern over the 20 percent VAT rate.

According to Liz Maher of Centurion VAT Specialists, the increase in VAT was an indication that the UK are moving towards indirect sales taxation rather than direct taxes. She also pointed out that the companies which can’t recover all the VAT they have to pay on their costs, will suffer a great deal more, especially those in the financial or healthcare sector. The Welsh Policy Unit of the Federation of Small Business were extremely worried about the effect of a VAT increase on their members a year ago and today that position remains unchanged. Janet Jones, the chairwoman of the Federation of Small Businesses Welsh Policy Unit said:

“It is increasing the threshold at which companies have to register for VAT that will put almost £900 million back in the pockets of small businesses.”

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