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21 June 2010

Left and right unite to condemn planned VAT rise

Expected rise in VAT under fire from trade unions and the Taxpayers’ Alliance.

By George Eaton

It must count as some achievement to attract the simultaneous ire of the Taxpayers’ Alliance and the TUC. That’s the unusual position the coalition finds itself in this afternoon as the anticipated rise in VAT comes under attack.

The TPA has released a video condemning the regressive effect that any rise would have, pointing out that “VAT hits the poor twice as hard as the rich”.

The video (and I apologise for the sub-Razorlight soundtrack) also reminds voters of the Lib Dem campaign poster that sounded the alarm over the Tories’ “VAT bombshell”.

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George Osborne is expected to raise VAT from 17.5 per cent to as much as 20 per cent. A recent report for the Centre for Retail Research found that raising VAT to this level 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 stores.

The TUC general secretary, Brendan Barber, has warned: “VAT increases don’t just hit the poor more than the rich, they also hit small firms, threaten retail jobs, and by boosting inflation could also lead to higher interest rates.”

Lib Dem left-wingers (if such a term is not completely oxymoronic) such as the party’s deputy leader, Simon Hughes, have already indicated that any rise in VAT would be unacceptable to them.

So long as the prize of electoral reform remains within their grasp, the Lib Dems will want to make the coalition work. But a VAT increase is bound to exacerbate the internal tensions that have emerged in recent weeks.

Osborne, a better politician than he is an economist, must hope that he has not miscalculated this time.

Hat-tip: Andrew Sparrow.

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