The standard rate of VAT will increase from 17.5% to 20% from 4 January 2011, announced Chancellor George Osborne in his first Budget, but zero-rating for most food remains in place.
Other announcements include the increase in reduction of the main rate of corporation tax from 28% to 24% over the course of four financial years from April 2011.
"Generally the measures could have been a lot more severe," said Mike Holling, chairman of the National Association of Master Bakers. "Many retailers had predicted the VAT increase; the positive news was that the Chancellor did not extend VAT to other food items. That move would have had a major impact on the NAMB’s membership."
Federation of Bakers director Gordon Polson said the fact that food remains zero-rated for VAT was clearly good news, and the reduction in corporation tax was a welcome announcement.
Funding for small businesses will be increased by a further £200m this year, through the Enterprise Finance Guarantee (EFG). And there was a reversal of the most damaging part of the planned increase in employer National Insurance Contributions, with the threshold to be raised by £21 above indexation by April 2011.