The poster that the Lib Dems want you to forget

And how Osborne misled us all over his VAT increase.

Lib Dem

It was unclear whether George Osborne would raise VAT right up until the moment he stood up in the Commons. After all, during the election campaign, the then shadow chancellor insisted he had "no plans" to raise this regressive tax.

Here's the key quotation:

The plans we set out involved around 80 per cent of the work coming from spending restraint and about 20 per cent from tax increases . . . The tax increases are already in place; the plans do not include an increase in VAT.

Nothing has changed since then to necessitate a sharp rise in VAT to 20 per cent (as Will Straw points out, this was far from an "unavoidable" tax increase). In fact, the deficit, then thought to stand at £167bn, is now £149bn. The grim conclusion must be that Osborne hid this tax rise from the voters for electoral purposes.

There were some key figures, the Lib Dems and Ed Balls among them, prepared to sound the alarm during the campaign. Nick Clegg's party even released a now infamous poster warning of a Tory VAT "bombshell". They were right about that but, presumably, never planned to help drop it.

One wonders how Simon Hughes, who last week denounced VAT as "the most regressive tax", feels today. Will the Lib Dems' deputy leader have the courage to speak up for his party's grass roots? Will Charles Kennedy? Will Paddy Ashdown? One hopes so.

There is no doubt that this tax rise will hit the poorest hardest. As the Fabian Society's Tim Horton has noted, while the richest 10 per cent pay £1 in every £25 in VAT, the poorest 10 per cent pay £1 in every £7.

But not only is this tax hike socially unjust, it is also economically defective. With growth weaker than expected, there are few worse possible responses than raising VAT.

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 shops.

In the Commons, as Harriet Harman attacked the Lib Dems' betrayal and Danny Alexander and Nick Clegg smirked away, one was reminded of the closing words of George Orwell's Animal Farm:

The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.

Today was the day that the Lib Dems lost their soul.

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George Eaton is political editor of the New Statesman.

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.