How the Tories and the Lib Dems broke their VAT promises

David Cameron insisted that the Tories had “absolutely no plans” to raise VAT.

As VAT rises to a record high of 20 per cent, I thought it might be worth looking back at the promises the Lib Dems and the Tories made on the subject during the election.

The Lib Dems famously made their opposition to a VAT increase a centrepiece of their general election campaign, warning of a "Tory VAT bombshell". They were right about that but, presumably, never planned to help drop it.

At that time, Nick Clegg said: "We see absolutely no reason to raise VAT because we have done our homework, we have identified where money can be generated and where money can be saved."

VAT

The Conservatives

The Tories' VAT promises have received less scrutiny but, if anything, their disingenuity is worse. Throughout the election campaign, David Cameron repeatedly stated that his party had "absolutely no plans to raise VAT".

He said:

We have absolutely no plans to raise VAT. Our first Budget is all about recognising we need to get spending under control rather than putting up tax.

This falls some way short of a guarantee not to raise VAT, but it also gives no hint of a tax rise that Cameron was planning all along. The grim conclusion is that the Tories hid this tax increase from the voters for electoral purposes.

More strikingly, in May 2009, the Conservative leader suggested that he would never raise a tax that "hits the poorest the hardest". As he said:

You could try, as you say, to put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you. Any sales tax, anything that goes on purchases that you make in shops tends to . . . if you look at it, where VAT goes now it doesn't go on food, obviously, but it goes very, very widely and VAT is a more regressive tax than income tax or council tax.

Both parties have since attempted to justify the VAT rise by arguing that "things were even worse than we thought". But this claim does not bear scrutiny. The Lib Dems and the Tories were fully aware of the size of the Budget deficit and, just ten days after the coalition was formed, the deficit was revised downwards from £163.4bn to £156bn, having previously stood at £178bn. The VAT rise was a political choice, not an economic necessity.

Moreover, £12.4bn of the £13.5bn raised by the increase is being used to pay for tax cuts elsewhere, including to National Insurance and to corporation tax. In the Guardian, Philippe Legrain sets out a range of alternatives to raising VAT, including new taxes on financial transactions, carbon and land.

We are still waiting for a convincing justification for a tax rise that is not only unfair, but also economically reckless.

George Eaton is political editor of the New Statesman.

Getty
Show Hide image

How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

0800 7318496