Gordon Brown all but admitted yesterday that he had considered raising VAT above 18.5% as the Tories accused him of planning a post-election "tax bombshell".
Gordon Brown all but admitted yesterday that he had considered raising VAT above 18.5% as the Tories accused him of planning a post-election "tax bombshell".
In robust exchanges in the Commons, David Cameron made great play of the inadvertent inclusion in the pre-Budget report of how the UK Government had considered raising VAT to 18.5% to produce an extra £5bn a year. He asked if there had been consideration of raising it further.
The Prime Minister conspicuously failed to deny the suggestion, admitting "all options" had been looked at in the emergency budget. However, he stressed that he had rejected raising VAT - a policy adopted by the Conservatives in the recessions of the 1980s and 1990s - and instead had decided to lower it from 17.5% to 15% for a year to help hard-working families and boost consumer spending.
The admission came during a rowdy PMQs when the Tory leader accused Mr Brown of bankrupting Britain and argued that the UK Government's plan to hit higher earners with a 45% income tax rate meant "New Labour is dead".
The PM hit back, insisting the Conservatives could no longer call themselves compassionate when, in fact, they wanted to "let the recession run its course". He accused Mr Cameron of being "the do-nothing leader of a do-nothing party".
During question time, Mr Brown announced that London would host the G20 summit on April 2; the leaders are expected to include Barack Obama, America's new president.
Much of the heat of the exchanges came when Mr Cameron referred to the Treasury document, which showed the option of raising VAT to 18.5% had been considered by Mr Brown; it had the name of Stephen Timms, the Financial Secretary, next to it. The option was, in fact, dropped in favour of raising National Insurance Contributions(NICs) by 0.5%.
Later, in a debate on the PBR, Alistair Darling told MPs the inclusion of the 18.5% VAT option had been a mistake. A snap investigation showed Mr Timms had not signed the document. "It transpires," explained the Chancellor, "someone within either the Treasury or HM Revenue and Customs had typed the Financial Secretary's name alongside an impact assessment which he did not know about, had not seen and he'd never authorised."
During the debate, George Osborne claimed the UK Government had squandered a golden economy legacy and had created a "basket case of an economy".
Claiming the PBR was unravelling, the Shadow Chancellor insisted firstly there was the shock of doubling the national debt to £1 trillion, then it became clear the rise in NICs would hit people on modest incomes, next there was a "£100bn black hole in the tax revenues with no explanation of how it would be filled" and, finally, there was the "secret tax bombshell to increase VAT to 18.5%".
He added that ministers had destroyed public trust in the UK Government's motives, "confirming what everyone suspects: that Labour's temporary giveaways now are dwarfed by permanent tax rises later".
Mr Darling responded by declaring how there was now a clear choice in British politics between Labour and the Conservatives; "between supporting people, supporting businesses, supporting the economy as countries are now doing across the world, or walking away, saying we will do absolutely nothing and letting recession run its course".
As reported by The Herald yesterday, the Chancellor confirmed he was halving a planned 8% duty increase on Scotch whisky and other spirits after protests from the industry. The increase, to take effect on December 1, would now be just 4%.
Jim Murphy, the Scottish Secretary, said: "The Chancellor has acted decisively in this matter and the move should be welcomed by industry."
However, the move was described by Angus Robertson, the SNP leader at Westminster, as a Treasury climbdown in response to the "outcry" caused by the original proposal.
