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3 January 2011

A winning message for Miliband?

The Labour leader should pledge to scrap the VAT increase, not merely condemn it.

By George Eaton

Like 2010, 2011 begins with Labour and the Conservatives at war over the economy. Last year it was Alistair Darling attacking the Tories’ £34bn “black hole”, this year it’s Ed Miliband condemning tomorrow’s VAT rise. The Labour leader will take to the campaign trail in Oldham East and Saddleworth (the first big electoral test of his leadership) and attack the increase as the “wrong tax, at the wrong time”.

On paper, this should be an easy win for Miliband. The VAT increase is unfair (as David Cameron noted in April 2009, “it hits the poorest the hardest”), unnecessary and economically reckless. In his campaign against the rise, Miliband can also count on the support of some unfamiliar allies, including the Taxpayers’ Alliance and the Daily Mail. And he can handily remind voters that it was the Lib Dems who warned of a “Tory VAT bombshell” (before joining the assault) and Cameron who insisted during the general election campaign that he had “absolutely no plans” to raise the tax.

Miliband will say: “Today we start to see the Tory-led agenda move from Downing Street to your street. At midnight VAT goes up, hitting people’s living standards, small businesses and jobs. The VAT rise is the most visible example of what we mean when we say the government is going too far and too fast.”

But if he’s to win over the voters, he will need to rebut the charge that Labour’s profligacy made the tax rise “unavoidable”. Miliband should point out that the VAT increase was only required to pay for tax cuts elsewhere: £12.4bn of the £13.5bn to be raised could have been saved, had the government not cut other taxes including corporation tax, council tax, National Insurance and income tax.

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As Robert Chote noted in May, while he was still director of the Institute for Fiscal Studies: “When Mr Osborne said that ‘the years of debt and spending’ made the £13bn increase in VAT unavoidable you might just as well say it was his desire to cut other taxes that made it so.”

After this, Miliband should pledge to scrap the rise, not merely condemn it. On too many issues, from the Spending Review to tuition fees to education, Labour’s attack has been blunted by the lack of a clear alternative. This mistake must not be repeated.