Increase Vat rate from 20% to 22.5%.

VAT is the second-largest source of government revenue after income tax. In 2025–26, VAT is expected to raise £180.4 billion, accounting for 14.7% of all government receipts.

The Office for Budget Responsibility (OBR) emphasizes the importance of tax receipts as a share of GDP for assessing the sustainability of public finances.

A modest increase to 22.5% would still place the UK below these countries, aligning it more closely with EU norms and reducing the risk of cross-border tax arbitrage.

VAT is levied on consumption and is relatively efficient to collect. It taxes value added at each stage of production, making it harder to evade than income tax.

For background on this important Tax, please read VAT Deep Dive article.