Labor tax expert suggests lowering VAT threshold

Sir Edward Troup argues that lowering the threshold will boost growth. Photo: STEVE BACK

Former senior civil servant who advises Labor on tax matters. has proposed halving the VAT registration threshold, which would hit hundreds of thousands of small businesses.

Sir Edward Troup, the former head of HMRC, said lowering the threshold «would be a better way to remove the barrier to growth» than the recent decision government to raise it.

Labour announced earlier this month that Sir Edward would advise the party on «improving tax compliance» and «modernizing» HMRC.

In the March Budget, Jeremy Hunt increased the VAT threshold from £85,000 to £90,000.

The Chancellor said the change would “reduce the administrative and financial impact” of the tax and that it would “completely eliminate VAT payments for dozens of thousands of businesses and will encourage even more people to invest and grow.”

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However, the move was criticized by Sir Edward at the time. Responding to the news on X, formerly known as Twitter, he said: «Halving the threshold would be the best way to remove the barrier to growth.»

Such a move would result in hundreds of thousands of additional small businesses being forced to charge VAT.

According to one set of calculations published by The Telegraph, reducing the threshold to £50,000 is a figure close to Sir Edward's proposal. – this will mean that in 2025-2026 a further 351,000 businesses will have to register to pay the tax.

Sir Edward and others argue for lowering the threshold on the grounds that it is high by international standards and because there is evidence that small businesses are limiting their annual turnover to avoid having to register.

'Back to the starting point.

But Nigel Huddlestone, financial secretary to the Treasury, said: “This is further evidence that Labor is not serious about cutting taxes for businesses and working people.”

“Labour will take us back.” To fix this by putting pressure on business by raising taxes.

“Meanwhile, the Conservative government is sticking with its plan to reward hard work — putting £900 back into the pocket of the average worker earning £35,400 a year.”

Sir Edward was not only a former permanent secretary of HMRC, but also served as a special adviser to Lord Clarke, the former Conservative Chancellor.

Earlier this month, the Labor Party announced that he had been appointed to an expert panel to advise on reforming HMRC.

Influential figures

Sir Edward is one of many influential figures linked to Labor who have campaigned for lowering the registration threshold VAT

The Resolution Foundation think tank, run by former Labor councilor Thorsten Bell, has proposed reducing the amount to £30,000 on the grounds that it is «currently costly and inhibits the growth of small firms» .

Dan Needle, a tax expert and Labor campaigner, meanwhile called the decision to raise the threshold «the biggest disappointment in the budget» as «there is a lot of evidence that the current high level is damaging.»

Some right-wing organizations , such as the Adam Smith Institute, have also argued in the past for lowering the VAT threshold to get rid of the «bundling» effect where small businesses cut their income to avoid going over it.

A Labor Party spokesman said: “This is not Labor Party policy. Edward Troup is on a panel convened by shadow finance minister James Murray that is helping Labour's plans to crack down on tax evasion.

“After 14 years of Tory chaos, Labour's crackdown on tax evasion will help fund the NHS was brought to its knees and feeding children in schools across the country.

“The Conservatives have failed economically, creating a high-tax, low-growth economy that has left our public services in dire straits. It's time for the Prime Minister to call a general election and form a Labor government that will grow our economy and rebuild our NHS.”

Sir Edward's comment is not the first time he has sparked controversy. Earlier this month it was reported that he had proposed that «weirdo» pensioners should pay higher taxes and be stripped of their free-to-air TV licences.