VAT rise comes at worst possible time

15th December 2010

The VAT rise which is set to kick in on the January 4 th 2011 will see the tax on goods and services rise from 17.5% to 20%. In a study carried out by The Daily Record, the impending VAT hike is expected to cause “a collective financial headache”, as the tax rise will cost British citizens a forecasted £6 billion a year.

And those worst hit will be the families will the lowest levels of disposable income, already struggling to make ends meet. This includes low income families and those surviving on benefits alone.

Other groups which are expected to be extremely vulnerable are those in debt who are currently just scraping by with their debt repayments, whose efforts will be heavily undermined by such a rise. With increased costs there is likely to be a hard choice between continuing to use an increasing amount of credit or to accept that the existing repayment levels are no longer manageable and to seek debt advice.

Another group that may find the VAT increase difficult is those already in debt solutions, such as a protected trust deed, where they have already committed to a fixed payment level that is unlikely to be reduced. In this situation cutbacks may need to be made in other areas to ensure that the debt solution is maintained.

Households that have “just” been managing to live to their means may find the use of credit increasingly tempting when their basic expenditure increases in January. Without the use of credit they may find that cutbacks might have to be made to their leisure or other discretionary types of spending. Without cutbacks credit levels are likely to rise leading to future risks and further cutbacks.

2011 may also see further increases in utility bills and mortgage interest rates accompanied by rising levels of unemployment as the public sector cutbacks get properly underway.

All of these factors point towards a difficult period for everyone, but especially those already struggling to deal with their debts. Seeking good advice is essential to avoid a “debt spiral” setting in which might otherwise lead to the debt solutions that remain available being fewer in number and potentially more severe in their implications. The options that may help people to regain control over unmanageable debts include a protected trust deed, a debt management plan or the Debt Arrangement Scheme. In certain circumstances bankruptcy might also be appropriate.

For further Trust Deed news and information, please visit our forum where we have a wealth of informative advice from experienced industry experts.

Trust Deed Latest News

Trust Deed Firms