Tweet
Gordon Brown and Alistair Darling faced Conservative claims yesterday, which they failed to deny, that the government had considered pushing VAT up to 20% in 2012 and not just the 18.5% leaked on a government website on Tuesday night.
During exchanges in the Commons, Brown was challenged by David Cameron, the Tory leader, and Darling by George Osborne, the shadow chancellor, to deny that they had ever considered increasing VAT to 20% as the best way of fixing the hole in the government's finances. But Brown and Darling said a range of options had been considered.
The political split widened as the Tories denounced Labour's "secret tax bombshell" and Brown called Cameron a "do-nothing leader". In the pre-budget report, the government cut VAT from 17.5% to 15% from Monday for a year. Treasury sources confirmed that they considered increasing VAT to 18% but rejected the proposal in favour of introducing a 45% top rate of tax for those earning £150,000 or more, as well as increasing national insurance contributions by 0.5%.
An increase in VAT to 20% would probably have required the approval of the European commission, but the very fact it was considered reveals how deeply concerned the government is by the scale of the borrowing. It also fits with the belief that the Treasury was more eager than No 10 to stem the gap in borrowing, and was prepared to make unpalatable choices to raise revenue. Brown's spokesman denied further rises in VAT were now necessary or even on the table. A 20% VAT level would have been highly regressive.
Cameron accused the prime minister of giving the UK the "debt levels of Italy and the accounting practices of Enron". But Brown accused the Tories of being the do-nothing party, a reference to their opposition to the £20bn fiscal stimulus.
Osborne claimed the figures in the PBR on debt were shocking and said: "This government are bequeathing to their successors a complete basket case of an economy".
In an effort to rebut the claim that the Tories have nothing to say on how to stem the recession, Osborne said the government should set up a state institution that would directly underwrite lending from the banks to businesses.
It would do so for a commercial insurance fee, passed on by the banks, that would fully protect the taxpayer. The scheme would act like the secured guarantees for a fee that the Bank of England has in place for inter-bank lending.
Darling said the government already had a version of this scheme in place and issued a fresh warning to the banks saying they have "got to understand that just as in the good times they are falling over themselves to get customers from businesses and individuals, so in these difficult times they owe it to their customers to treat them fairly and reasonably".
During the debate, called unusually by Michael Martin, the Speaker, the Tory former chancellor Kenneth Clarke said Britain was facing probably the longest and deepest recession for 60 years. The scale of the borrowing was such that the government could not afford a fiscal stimulus, he said.
He said that at the heart the crisis was a banking and credit crisis, but the government was still "a million miles" from a credible policy on how to get the banks lending again. He said the crisis was worse in Britain than in other countries largely "because of the mismanagement of the public finances, the failure to retain sufficient firepower in the public finances ... and the complete failure of the regulatory system".
Vince Cable, the Liberal Democrat Treasury spokesman, said public reaction had transformed from "hope to despair and anger" following the PBR. He predicted a darkening recession over the next two years. He also argued that tax increases on the wealthy would not work, claiming: "The reason it will raise no money is this - because if you have a very high income, why should you pay 45% marginal rate of tax when you can convert it into capital and pay 18%?
"Or why not persuade your employer to give you a relief from higher income and put it into a pension pot that will again accrue higher rate tax relief of 45%?"
Whiskey retreat
The chancellor faced calls for "fair treatment" from the beer industry yesterday after cutting a planned duty increase on Scottish whisky. The Treasury had planned to increase duty by 8% - a rise of around 29p on the price of a standard bottle - on December 1 but has now halved the rise to 4% after an outcry by Scottish distillers.
The Liberal Democrat MP for Orkney and Shetland, Alistair Carmichael, called Alistair Darling's decision an "embarrassing U-turn". During the emergency debate on the pre-budget report yesterday, Darling told MPs he was "tabling a further order today to ensure that spirits, the duty there, is at a slightly lower rate, which I think will hugely benefit the spirits industry".
The British Beer and Pub Association demanded "fair treatment" for the beer industry. Mark Hastings, of the BBPA, said: "We're surprised that he's come up with this last-minute deal. Our industry is a major employer and pubs are closing. Let's look at this in the round."
- Tax and spending
- Labour
- Conservatives
- Tax
- Economic policy
- Pre-budget report 2008
- Credit crunch
- Economics
- Alistair Darling
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
