17th July 2026
When governments face a financial squeeze, they eventually face the same difficult question.
Where does the money come from?
For any new Prime Minister, raising taxes is politically dangerous. But if public spending commitments rise faster than revenues, the pressure to find additional income becomes difficult to avoid.
One suggestion now being discussed is VAT.
The OECD has argued that if the UK's public finances deteriorate further, increasing VAT could be one of the most effective ways to raise additional revenue quickly. It is a tax that already brings in huge sums for the Treasury and is relatively difficult to avoid.
But VAT also raises one of the biggest arguments in taxation:
Is the easiest tax to increase also the fairest?
Why VAT is attractive to governments
VAT has several advantages from a Treasury point of view.
It raises money every day because it is collected on millions of transactions.
It applies across the economy.
It does not directly tax earnings, meaning it is less likely to affect decisions about working or investing.
A small increase in the VAT rate can generate billions of pounds.
For a government facing pressure on public services, that is a very tempting option.
But VAT is often called a "regressive" tax
The problem is that VAT is based on spending, not income.
A household on a lower income usually has to spend a much larger proportion of its money on everyday necessities.
Food, clothing, household goods, transport and other costs take up a large share of their budget.
A wealthier household may pay more VAT in cash terms because it spends more, but it may represent a much smaller proportion of their income because they can save or invest a greater share.
That is why critics argue VAT can place a heavier burden on those with the least financial room.
The real-life impact
Imagine two households.
One earns £25,000 a year and spends nearly all of it keeping the household running.
Another earns £150,000 a year and spends a smaller proportion of its income.
Both pay VAT.
But the first household has fewer options. It cannot easily reduce spending because most purchases are necessities.
That is the political problem with VAT.
It may look fair on a government spreadsheet, but it can feel very different around the kitchen table.
Would businesses absorb the impact?
Another question is what happens if VAT rises.
Businesses may not simply add the full increase to prices.
Some may absorb part of the cost.
Others may reduce investment or accept lower profit margins.
For small businesses already struggling with wages, energy costs and other expenses, any tax increase can create another challenge.
For High Streets already under pressure, this matters.
A VAT rise could affect cafés, restaurants, tourism businesses and independent retailers — exactly the types of businesses many towns are trying to support.
Could there be fairer alternatives?
Those arguing against VAT increases often say governments should look elsewhere first.
Possible alternatives include:
increasing taxes on wealth or assets;
closing loopholes;
improving tax collection;
reforming outdated reliefs;
changing the balance between income, property and consumption taxes.
Supporters of VAT increases would argue that these alternatives may not raise money quickly enough or reliably enough.
The challenge facing Andy Burnham
The incoming government faces a difficult balancing act.
It wants to improve public services and address long-term problems, but it also needs to maintain confidence among investors and avoid worsening the debt position.
Burnham has indicated support for changes to taxation and greater devolution, but the exact choices ahead will become clearer as his government develops its plans.
The question will not simply be:
"How much money can the government raise?"
It will be:
"Who should pay, and what is a fair share?"
The view from Caithness
For households in places like Caithness, national tax decisions are not abstract.
People are already balancing:
energy costs;
food prices;
fuel bills;
council tax;
housing costs.
A VAT increase of a few percentage points might look small from Westminster, but for households with little spare income, every increase matters.
Taxation is always a balance between raising enough money to run the country and ensuring that those with the least ability to pay are not carrying the greatest burden.
VAT may be efficient.
But the debate will always remain:
Efficient for whom?