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.”
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”.
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.