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30 November 2014

Osborne refuses to rule out raising VAT after promising £2bn for NHS

The Chancellor says he"doesn't have any plans" to increase the tax: the same phrase he used before the 2010 increase. 

By George Eaton

George Osborne’s promise of £2bn extra for the NHS is an attempt to neutralise one of Labour’s strongest attack lines. By providing new money for the health service in Wednesday’s Autumn Statement, the Chancellor hopes to render the opposition’s pledge to spend £2.5bn extra irrelevant. In a shameless act of political plagiarism, he used his appearance on the Marr show to announce a further increase: the £1.1bn the government will receive in bank fines over the foreign exchange rate scandal will be used to fund improved GP services (Ed Balls last weekend called for the money to be spent on the NHS). By arguing that the £2bn of new funding has only been made possible by the Tories’ “long-term economic plan” and their commitment to deficit reduction, Osborne aims to use Labour’s weakness on fiscal responsibility to undermine its strength on the health service (the issue on which it polls best). 

In his own interview on Marr, Balls described the extra £2bn as “crisis money” made necessary by the coalition’s “mismanagement” of the service. He also questioned whether it was merely a “one-off bung”. But the Tory Treasury Twitter account was quick to reply that the money would be “baselined” (i.e. included in new calculations of future NHS spending) making it a permanent rather than a temporary increase (something confirmed by Osborne in his appearance). 

But the awkward question remains: how will all this be paid for? After Osborne’s NHS spending promise, it is even harder to see how he will meet his pledge to eliminate the deficit by the end of the next parliament while simultaneously avoiding further tax rises and cutting taxes by £7.2bn (increasing the personal allowance to £12,500 and the 40p rate threshold to £50,000). Most economists believe that he will fail on at least one of these fronts. 

It was telling, then, that Osborne repeatedly refused to rule out raising VAT, stating that he “doesn’t have any plans” to do so: the exact formulation used before the 2010 increase. Given the historic tendency of governments to raise taxes immediately after the election, it is right to be suspicious. But Osborne clearly believes that the Tories’ polling strength on the deficit means that they can get away with such fiscal recklessness in a way Labour never could. 

After today’s high octane politics, the opposition’s hope is that Osborne’s intervention will only raise the salience of the NHS and ultimately benefit them. The Chancellor’s gamble is that it will achieve the reverse. By at least giving the appearance of providing an answer to the funding crisis (Labour would still spend more) he hopes to deny Balls and Ed Miliband any benefit from running on this issue. 

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