06/06/2014 12:59 BST | Updated 06/06/2014 13:59 BST

IMF Urges George Osborne To Tax Books And Children's Clothes

Bloomberg via Getty Images
George Osborne, U.K. chancellor of the exchequer, right, and Christine Lagarde, managing director of the International Monetary Fund (IMF), arrive for a news conference at the U.K. Treasury in London, U.K., on Friday, June 6, 2014. The U.K. must act to contain rising house prices as increased indebtedness may pose a risk to the economic recovery, the International Monetary Fund said. Photographer: Chris Ratcliffe/Bloomberg via Getty Images

George Osborne has been urged to slap VAT on the likes of books, children's clothes and a range of food in a recommendation by the International Monetary Fund (IMF) on how to repair Britain's public finances.

The IMF's latest report on the British economy calls for the government to consider reducing the scope of products and services that are "zero-rated" for the purposes of sales tax - thought to represent 2.5% of gross domestic product (GDP).

It declined to specify which items ought to be reviewed though a number would be likely to prove politically unpalatable. They include diverse activities such as bingo, water supply and charity shop sales of donated goods.

An IMF source said it would be possible to reduce these exemptions either by moving them to full VAT of 20% or to a reduced level.

But any such move would be likely to raise the spectre of the "pasty tax" debacle in 2012, when the government was forced to revise plans to levy VAT on all hot food.


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Revised proposals meant the tax would exempt food, such as pasties, which is cooked hot but left to cool in cabinets before being served.

Plans to charge full VAT on static caravans were also watered down with the tax being levied instead at a reduced rate of 5%.

The report also suggested the government should more widely use means testing for social benefits and increase its use of pollution taxes such as levies on carbon and congestion, as it seeks to bring down its debt pile.

IMF managing director Christine Lagarde gave her blessing to how the coalition was presently balancing revenue raising and spending cuts to achieve this, saying: "We consider that the current mix is sensible."

She also poured cold water on suggestions that she could be next president of the European Commission, insisting she was "not a candidate", amid mounting concerns that ex-prime minister of Luxembourg Jean-Claude Juncker could get the job.

Juncker's prospective appointment has reportedly provoked David Cameron to starkly warn that it could lead to the UK leaving the European Union due the resulting instability that it would cause.

Tory MP Brooks Newmark, member of the Treasury select committee, told the Huffington Post UK: "Two years of Juncker as EU chief will be the best asset the Eurosceptics could possibly have in the run up to the referendum in 2017."

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