Conservatives deny reported plans to raise VAT

Britain's opposition Conservative Party Leader David Cameron listens as shadow Chancellor George Osborne delivers a speech on the economy in London July 20, 2009.

LONDON (Reuters) - The Conservatives denied a report late on Saturday that they were considering raising the rate of value-added tax to 20 percent from its current level of 15 percent if they win power.

The Sunday Telegraph said in a report on its website that the proposal "is being 'very actively considered' at the highest level," citing what it called senior shadow ministerial sources.

A Conservative party spokeswoman denied raising VAT to 20 percent was under discussion.

"There are absolutely no plans for such a rise and there's never been any discussion about it," she said.

The Conservatives are widely expected to defeat Gordon Brown's Labour Party in an election due within a year, and economists say whichever party wins will have to cut spending or raise taxes to reduce Britain's record budget deficit.

Both main parties have given few details so far about how they will narrow the budget gap -- something which has prompted criticism from sovereign ratings agencies such as Standard & Poor's and Fitch which evaluate Britain's creditworthiness.

The Sunday Telegraph said the Conservatives, who have traditionally aimed to lower taxation, had accepted the need for higher taxes as well as spending cuts.

"Tax rises will have to be part of the equation. It will be time for some strong medicine," the newspaper quoted a shadow ministerial source as saying, adding that the higher rate of VAT would raise 10 billion pounds.

VAT is already scheduled to return to 17.5 percent on January 1 2010, when a 13-month reduction aimed to boost spending during Britain's worst recession in decades comes to an end.

(Reporting by David Milliken, editing by Tim Pearce)