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.

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.