The Chancellor George Osborne has confirmed that VAT will rise to 20% from January 4 in his emergency Budget.
Kidswear will remain exempt from VAT in this parliament.
Osborne said: “This single tax measure will, by the end of parliament, generate £13bn of extra revenues.” He added: “The years of debt and spending make this unavoidable.”
Osborne also said the threshold at which employers start to pay National Insurance will rise to £21 per week and that the cost of hiring people on income lower than £21,000 will be lower.
Corporation tax will be cut by 1% per year for four years while the small companies’ corporation tax rates will be cut to 20%, benefitting 850,000 small businesses.The government will also continue to guarantee small companies access to lending.
The government will also reveal a new tax scheme to encourage new private businesses to set up in the regions. Anyone who sets up a new business outside London, the south-east and east of England will be exempt from £5,000 of National Insurance contributions for each of first 10 employees they hire.
A banks levy will be introduced on UK banks and the UK operations of foreign banks which generate more than £2bn in annual revenue in January 2011.
Osborne said he is planning for a “sustainable” private sector built on economic growth instead of “pumping the debt bubble back up”.
He said businesses “want certainty and stability from the government so they can start the process of rebuilding their businesses.”
For more on the emergency Budget click here.