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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Unite stewards urge members to back Owen Smith

In a letter to Unite members, the officials have called for a vote for the longshot candidate.

29 Unite officials have broken ranks and thrown their weight behind Owen Smith’s longshot bid for the Labour leadership in an open letter to their members.

The officials serve as stewards, conveners and negotiators in Britain’s aerospace and shipbuilding industries, and are believed in part to be driven by Jeremy Corbyn’s longstanding opposition to the nuclear deterrent and defence spending more generally.

In the letter to Unite members, who are believed to have been signed up in large numbers to vote in the Labour leadership race, the stewards highlight Smith’s support for extra funding in the NHS and his vision for an industrial strategy.

Corbyn was endorsed by Unite, Labour's largest affliated union and the largest trades union in the country, following votes by Unite's ruling executive committee and policy conference. 

Although few expect the intervention to have a decisive role in the Labour leadership, regarded as a formality for Corbyn, the opposition of Unite workers in these industries may prove significant in Len McCluskey’s bid to be re-elected as general secretary of Unite.

 

The full letter is below:

Britain needs a Labour Government to defend jobs, industry and skills and to promote strong trade unions. As convenors and shop stewards in the manufacturing, defence, aerospace and energy sectors we believe that Owen Smith is the best candidate to lead the Labour Party in opposition and in government.

Owen has made clear his support for the industries we work in. He has spelt out his vision for an industrial strategy which supports great British businesses: investing in infrastructure, research and development, skills and training. He has set out ways to back British industry with new procurement rules to protect jobs and contracts from being outsourced to the lowest bidder. He has demanded a seat at the table during the Brexit negotiations to defend trade union and workers’ rights. Defending manufacturing jobs threatened by Brexit must be at the forefront of the negotiations. He has called for the final deal to be put to the British people via a second referendum or at a general election.

But Owen has also talked about the issues which affect our families and our communities. Investing £60 billion extra over 5 years in the NHS funded through new taxes on the wealthiest. Building 300,000 new homes a year over 5 years, half of which should be social housing. Investing in Sure Start schemes by scrapping the charitable status of private schools. That’s why we are backing Owen.

The Labour Party is at a crossroads. We cannot ignore reality – we need to be radical but we also need to be credible – capable of winning the support of the British people. We need an effective Opposition and we need a Labour Government to put policies into practice that will defend our members’ and their families’ interests. That’s why we are backing Owen.

Steve Hibbert, Convenor Rolls Royce, Derby
Howard Turner, Senior Steward, Walter Frank & Sons Limited
Danny Coleman, Branch Secretary, GE Aviation, Wales
Karl Daly, Deputy Convenor, Rolls Royce, Derby
Nigel Stott, Convenor, BASSA, British Airways
John Brough, Works Convenor, Rolls Royce, Barnoldswick
John Bennett, Site Convenor, Babcock Marine, Devonport, Plymouth
Kevin Langford, Mechanical Convenor, Babcock, Devonport, Plymouth
John McAllister, Convenor, Vector Aerospace Helicopter Services
Garry Andrews, Works Convenor, Rolls Royce, Sunderland
Steve Froggatt, Deputy Convenor, Rolls Royce, Derby
Jim McGivern, Convenor, Rolls Royce, Derby
Alan Bird, Chairman & Senior Rep, Rolls Royce, Derby
Raymond Duguid, Convenor, Babcock, Rosyth
Steve Duke, Senior Staff Rep, Rolls Royce, Barnoldswick
Paul Welsh, Works Convenor, Brush Electrical Machines, Loughborough
Bob Holmes, Manual Convenor, BAE Systems, Warton, Lancs
Simon Hemmings, Staff Convenor, Rolls Royce, Derby
Mick Forbes, Works Convenor, GKN, Birmingham
Ian Bestwick, Chief Negotiator, Rolls Royce Submarines, Derby
Mark Barron, Senior Staff Rep, Pallion, Sunderland
Ian Hodgkison, Chief Negotiator, PCO, Rolls Royce
Joe O’Gorman, Convenor, BAE Systems, Maritime Services, Portsmouth
Azza Samms, Manual Workers Convenor, BAE Systems Submarines, Barrow
Dave Thompson, Staff Convenor, BAE Systems Submarines, Barrow
Tim Griffiths, Convenor, BAE Systems Submarines, Barrow
Paul Blake, Convenor, Princess Yachts, Plymouth
Steve Jones, Convenor, Rolls Royce, Bristol
Colin Gosling, Senior Rep, Siemens Traffic Solutions, Poole

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.