VAT Should be Imposed on Food and Children's Clothes, says IMF

In an unusual intervention, the IMF said one of the best ways for the coalition Government to raise money and repair the public finances would be to remove the zero-rate that excluded a number of goods from VAT.

The recommendation came amid suspicion that the Government would also have to raise the level of the sales tax from 17.5 per cent to 20 per cent if it was to afford the tax pledges it made in its agreement earlier this week.

Although the IMF's suggestion, published in a comprehensive survey of public finances around the world, was less eye-catching than raising the headline rate, it would potentially have a greater impact on the price of goods, and on families' living standards.

The document, signed by Dominique Strauss-Kahn, the IMF's managing director, said: "There is substantial scope for improving the revenue performance of the VAT in almost all countries, including by eliminating exemptions and reduced rates."

VAT is not charged by HM Revenue and Customs on certain items, including food, children's clothes, domestic passenger transport, books and prescription drugs.'

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