Balls’s smart move on VAT

Ed Balls’s decision to oppose any rise in VAT is smart politics and smart economics.

Ed Balls's bold claim that ruling out a rise in value-added tax would have saved Labour from defeat in the election is rather wide of the mark. With the electorate inherently sceptical of tax pledges by politicians, such a promise would never have shifted many votes.

But there was then and is now a principled argument for opposing any rise in this most regressive of taxes. By staking out a clear position ahead of next week's emergency Budget, Balls has invited his rival leadership candidates to follow suit.

I'd be surprised if the coalition chose to raise VAT this early in its lifetime, but with the new Office for Budget Responsibility poised to downgrade Labour's growth forecasts, George Osborne might believe he has found a justification.

In fact, should growth be weaker than expected, few responses could be worse than increasing VAT. A rise in the tax would not only hit the poorest, who spend a disproportionate amount of their income on basic goods, hardest, it would also suck vital demand out of the economy.

A recent report for the Centre for Retail Research found that raising the VAT rate to 20 per cent would cost each household £425 a year on average. It added that the resultant drop in consumer spending could cost 47,000 jobs and lead to the closure of almost 10,000 stores.

Balls doesn't cite these figures, but he is right when he argues:

It would be economic madness to raise VAT -- on top of the spending cuts the government has announced. Raising VAT will either depress spending and stifle growth, increase prices and stoke inflation, or be absorbed by the struggling retail sector.

But as well as being smart economics, opposing a rise in VAT is smart politics. Along with electoral reform, tax is one of the most potentially disruptive internal tensions within the coalition.

Should the government raise VAT while backtracking on its plan to increase capital gains tax significantly, Balls's intervention will look prescient.

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George Eaton is political editor of the New Statesman.

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Why the Labour rebels have delayed their leadership challenge

MPs hope that Jeremy Corbyn may yet resign, while Owen Smith is competing with Angela Eagle to be the candidate.

The Eagle has hovered but not yet landed. Yesterday evening Angela Eagle's team briefed that she would launch her leadership challenge at 3pm today. A senior MP told me: "the overwhelming view of the PLP is that she is the one to unite Labour." But by this lunchtime it had become clear that Eagle wouldn't declare today.

The delay is partly due to the hope that Jeremy Corbyn may yet be persuaded to resign. Four members of his shadow cabinet - Clive Lewis, Rachel Maskell, Cat Smith and Andy McDonald - were said by sources to want the Labour leader to stand down. When they denied that this was the case, I was told: "Then they're lying to their colleagues". There is also increasing speculation that Corbyn has come close to departing. "JC was five minutes away from resigning yesterday," an insider said. "But Seumas [Milne] torpedoed the discussions he was having with Tom Watson." 

Some speak of a potential deal under which Corbyn would resign in return for a guarantee that an ally, such as John McDonnell or Lewis, would make the ballot. But others say there is not now, never has there ever been, any prospect of Corbyn departing. "The obligation he feels to his supporters is what sustains him," a senior ally told me. Corbyn's supporters, who are confident they can win a new leadership contest, were cheered by Eagle's delay. "The fact even Angela isn't sure she should be leader is telling, JC hasn't wavered once," a source said. But her supporters say she is merely waiting for him to "do the decent thing". 

Another reason for the postponement is a rival bid by Owen Smith. Like Eagle, the former shadow work and pensions secrtary is said to have collected the 51 MP/MEP nominations required to stand. Smith, who first revealed his leadership ambitions to me in an interview in January, is regarded by some as the stronger candidate. His supporters fear that Eagle's votes in favour of the Iraq war and Syria air strikes (which Smith opposed) would be fatal to her bid. 

On one point Labour MPs are agreed: there must be just one "unity candidate". But after today's delay, a challenger may not be agreed until Monday. In the meantime, the rebels' faint hope that Corbyn may depart endures. 

George Eaton is political editor of the New Statesman.