UNITED KINGDOM - Britain's Cabinet OKs 5 percent pay cut  

Britain's coalition Cabinet, meeting for the first time Friday, voted to cut its pay by 5 percent amid reports of a possible value-added tax hike.

The Conservative-Liberal Democrat Cabinet's pay reduction came as a survey reported independent Treasury economists expected Prime Minister David Cameron's government to push for a sharp increase in the value-added tax to try to reduce the deficit, The Times of London reported.

The pay cut means Conservative-Liberal Democrat coalition Cabinet ministers will earn about $196,000 a year, about $10,000 less than their Labor Party predecessors.

Twenty-four of the 28 economists who assist in the Treasury forecasts said they expected the tax to increase from 17.5 percent to 20 percent by the end of next year.

Analysts said increasing the VAT would be a politically expedient way to increase revenues even though it disproportionately hits lower income households, The Times reported.

Business leaders, including Justin King, chief executive officer for food retailer Sainsbury, warned that increasing the value-added tax would hit retail sales.

"A VAT rise to 20 percent is clearly on the government's mind," King said. "What we would say is we need to know in good time and would say that there needs to be sensible timing, and not in our key trading periods such as the run-up to and in the aftermath of Christmas."

Source: UPI.com, United Kingdom, dated 14/05/2010