As the VAT increase of 2.5% kicks in today, George Osborne is spinning the tale that this is necessary in order to tackle the budget deficit.
I would agree that the budget deficit needs to be tackled. However, I make the following observations:
1 The debt of the UK stands at £4.8 Trillion, it will take much more than a 2.5% increase in VAT to tackle that.
2 As with decimalisation in the early 1970's, retailers will use this VAT rise as an excuse to round up prices. The result will be, as in the 70's, an inflationary bubble.