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PBR 2009 - VAT back up to 17.5 per cent

In his Pre-Budget speech, chancellor Alistair Darling confirmed that the VAT rate will return to 17.5 per cent by January 2009, having been cut to 15 per cent earlier this year to encourage consumer spending as the UK entered its worst recession since the Second World War.

However, some believe that the reversal could hurt new year retail sales and the UK’s economic recovery.

Jim Leaviss, head of retail fixed income at M&G, said, ‘The VAT reversal will not only cause a blip upwards in inflation rates – most of the CPI basket apart from food attracts the tax – but might also derail the recovery of the UK economy.’

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