How VAT has risen as income tax has fallen

For the first time, the rate of VAT is the same as the basic rate of income tax.

Today's VAT increase means that, for the first time in Britain, the rate of VAT is the same as the basic rate of income tax. As the graph below shows, while the basic rate has fallen from 30 per cent to 20 per cent, VAT has risen from 10 per cent to 20 per cent.

VAT

VAT was introduced in April 1973 as a result of Britain joining the European Union (as Evan Davies noted on the Today programme this morning, it's a rare example of an EU policy that the Tories like) and has been raised three times since, each time by a Conservative chancellor.

In the 1979 Budget, Geoffrey Howe, who, like David Cameron, had insisted that he had "no plans" to raise VAT, increased the tax from 8 per cent to 15 per cent. Eleven years later, Norman Lamont raised VAT to 17.5 per cent in order to pay for a poll tax cut of £140 a head. VAT then remained at this rate for 18 years, until Alistair Darling reduced it to 15 per cent as part of the Brown government's fiscal stimulus. The 17.5 per cent rate returned at the start of 2010.

With George Osborne confirming again today that the rise to 20 per cent is "permanent" (unlike the 50p tax rate), Britain's tax system has been tilted in an unprecedented direction. Opinion remains divided on whether VAT is "regressive". As Osborne pointed out this morning on the Today programme, the Institute for Fiscal Studies has suggested that the tax is "mildly progressive" on the basis that the poor spend more of their income on VAT-exempt goods than the rich. To my mind, this analysis falsely assumes that the poor have the same powers of saving and borrowing as the rich. Richard Murphy of Tax Research UK has a detailed rebuttal here.

With the coalition pinning its hopes on a robust recovery before the next election, however, it's likely to be the economics of the VAT rise that dominate the debate.

George Eaton is political editor of the New Statesman.

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The SNP thinks it knows how to kill hard Brexit

The Supreme Court ruled MPs must have a say in triggering Article 50. But the opposition must unite to succeed. 

For a few minutes on Tuesday morning, the crowd in the Supreme Court listened as the verdict was read out. Parliament must have the right to authorise the triggering of Article 50. The devolved nations would not get a veto. 

There was a moment of silence. And then the opponents of hard Brexit hit the phones. 

For the Scottish government, the pro-Remain members of the Welsh Assembly and Sinn Féin in Northern Ireland, the victory was bittersweet. 

The ruling prompted Scotland’s First Minister, Nicola Sturgeon, to ask: “Is it better that we take our future into our own hands?”

Ever the pragmatist, though, Sturgeon has simultaneously released her Westminster attack dogs. 

Within minutes of the ruling, the SNP had vowed to put forward 50 amendments (see what they did there) to UK government legislation before Article 50 is enacted. 

This includes the demand for a Brexit white paper – shared by MPs from all parties – to a clause designed to prevent the UK reverting to World Trade Organisation rules if a deal is not agreed. 

But with Labour planning to approve the triggering of Article 50, can the SNP cause havoc with the government’s plans, or will it simply be a chorus of disapproval in the rest of Parliament’s ear?

The SNP can expect some support. Individual SNP MPs have already successfully worked with Labour MPs on issues such as benefit cuts. Pro-Remain Labour backbenchers opposed to Article 50 will not rule out “holding hands with the devil to cross the bridge”, as one insider put it. The sole Green MP, Caroline Lucas, will consider backing SNP amendments she agrees with as well as tabling her own. 

But meanwhile, other opposition parties are seeking their own amendments. Jeremy Corbyn said Labour will seek amendments to stop the Conservatives turning the UK “into a bargain basement tax haven” and is demanding tariff-free access to the EU. 

Separately, the Liberal Democrats are seeking three main amendments – single market membership, rights for EU nationals and a referendum on the deal, which is a “red line”.

Meanwhile, pro-Remain Tory backbenchers are watching their leadership closely to decide how far to stray from the party line. 

But if the Article 50 ruling has woken Parliament up, the initial reaction has been chaotic rather than collaborative. Despite the Lib Dems’ position as the most UK-wide anti-Brexit voice, neither the SNP nor Labour managed to co-ordinate with them. 

Indeed, the Lib Dems look set to vote against Labour’s tariff-free amendment on the grounds it is not good enough, while expecting Labour to vote against their demand of membership of the single market. 

The question for all opposition parties is whether they can find enough amendments to agree on to force the government onto the defensive. Otherwise, this defeat for the government is hardly a defeat at all. 

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.