Tax books and child clothes - IMF

Ministers should consider levying VAT on the likes of books, children's clothes and a range of food under recommendations by the International Monetary Fund (IMF) on how to repair the public finances.

IMF chief Christine Lagarde has backed the way the Coalition is balancing revenue raising and spending cuts
IMF chief Christine Lagarde has backed the way the Coalition is balancing revenue raising and spending cuts

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.

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."