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Oral question asked in the House of Lords, by Lord Fox (Liberal Democrat). It was answered on Thursday, 5 March 2026.

Small Businesses: VAT Threshold

Question

My Lords, if the Minister could open his mind beyond the data of the Question, there is no shortage of studies from very reputable organisations—the IMF, the OECD and others—that there is significant bunching around a threshold, and that is not a surprise. Where they do not agree is whether the brake on growth would be improved by raising or lowering the threshold. Can the Minister tell your Lordships’ House that the Treasury will not succumb to a Goldilocks effect and conclude that, because some say it should be higher and others say it should be lower, it is happy to leave it where it is? Can

he assure us that sensitivity studies are being run to look at where the threshold should be? Getting it right will open up more growth.

Answer

I am very happy to open my mind in response to the noble Lord’s question. The existence of bunching around the VAT threshold is well established and has been analysed by the Office for Budget Responsibility. The OBR has explained that, where a registration threshold exists, some firms will cluster just below it to avoid the administrative and pricing consequences of entering the VAT system. That is an inevitable consequence and recognised feature of a threshold-based tax system. He will know that decisions on tax and thresholds are taken only at fiscal events. Raising the threshold further would reduce burdens for some firms, but it would also carry significant fiscal cost. The UK threshold is already high by international standards. The UK threshold of £90,000 compares to an average in OECD economies of £30,000. It could be argued, as I think the noble Lord is doing, that lowering the threshold could support growth by reducing the distortions created by the cliff edge of the threshold, but the Government are also mindful of the impact this could have on small businesses.

Secondary information

Type
Oral question
Reference
853 c1414 
Session
2024-26
Oral question type
Supplementary
Chamber / Committee
House of Lords chamber
Subjects
Small businesses VAT Tax thresholds
Link
View this Oral question on hansard.parliament.uk