VAT applied to all foods 'would cost 31,000 jobs'

FOOD manufacturers yesterday made a last-minute plea to the Chancellor, Kenneth Clarke, warning him that extending 17.5 per cent VAT to all food products could cost 31,000 jobs and risk breaching his inflation targets, writes Heather Connon.

A study for the Food and Drink Federation, carried out by Price Waterhouse, estimates that such a change could add pounds 10 to the average shopping bill for a family with two children. It adds that such an increase could dampen consumer confidence and slow the recovery.

The report warns that food manufacturers will have little scope to absorb any extra VAT in their margins, which have already been squeezed by the recession and pressure for lower prices from retailers. Its job-loss estimate is based on passing 40 per cent of the rise on to the consumer, with the retailer and manufacturer sharing the rest between them.

The change would, however, bring in an extra pounds 7.2bn in VAT, boosting the take from food to pounds 8.8bn, but would add 3.9 per cent to the inflation rate. That is just below the Government's target of a maximum inflation rate of 4 per cent.

The report reveals that Britain and Ireland are the only European Union countries not to charge VAT on basic foods.