Happy new year from the Con Dem coalition. Bus and rail fairs soar, and most pernicious of all, the VAT hike.
It’s pernicious for two reasons: because the parties in Government pledged not to do it, and because it’s not necessary. Before the election Cameron consistently said that a Tory government would not raise VAT. And the Liberal Democrats argued that no VAT rise was necessary and famously issued a campaign poster warning of a Tory tax bombshell:
Now they themselves are acquiescing in such a tax increase.
The Coalition will doubtless argue that they have to do this because of the mess in which Labour left the public finances. But it’s not true. As Left Foot Forward pointed out, the increased revenue from the VAT rise is almost entirely offset by tax cuts elsewhere:
According to the Budget red book, The increase in VAT from 17.5 per cent to 20 per cent raises £13.5 billion by 2014-15. But cuts to income tax, national insurance, corporation tax, and council tax cost £12.4bn. Net of Tory tax cuts, the VAT rise brings in just £1.1bn.
£1.1 bn? A drop in the ocean compared with the size of the deficit, and a fraction of what Osborne wrote off in the Vodafone tax deal. And the same piece in Left Foot Forward points out the evidence that the VAT rise is regressive, and will hit the North harder than the South.
Finally, Osborne has made it clear in an interview in the Spectator that this is not a temporary or crisis measure. 20% VAT is here to stay:
But the VAT rise – it’s going up to 20 per cent on New Year’s Day – is here to stay. “The VAT rise is not temporary. It can’t be. We are talking about a totally different scale of revenue and the VAT rise is a structural change to the tax system to deal with a structural deficit.”
The only tax he speaks of lowering is corporation tax – and, on this, he is emphatic. “Show me a country in the world with our sort of fiscal challenge that is prepared to take the difficult political decision to cut the corporate tax rate from 28 per cent down to 24 per cent over four years, giving us the lowest corporate tax rate in the G7, the fifth lowest in the G20, the lowest of any major western economy. I think we’ve put our money where our mouth is. It would have been the easiest thing to say, ‘businesses don’t vote, let’s put the taxes up on them, no one’s going to notice’. We have done the exact reverse of that.”
The truth is that this is an explicitly ideological tax increase, shifting the burden of tax on to the less well-off, hitting those on lower incomes and in poorer parts of Britain hardest. It’s not a crisis measure, it makes little or no difference to the deficit, and it’s here to stay. And it’s further proof – if any were necessary – that the Liberal Democrats have abandoned every principle on which they fought the last election.