VAT Attack

Former Deputy Prime Minister John Prescott has ranted against former Labour Ministers Frank Field and John Hutton advising David Cameron on welfare reform and pensions respectively.

(Frank Field, you may recall, was asked to ‘think the unthinkable’ on welfare reform by Tony Blair. When he did just that, he was sacked.)

Prescott is, naturally, wrong. To use the term “collaborators” is typical paranoia from the old socialist, unable to accept that politics can mean cooperation and compromise. Forget Gordon Brown’s “Government of the Talents”; that was the past, this is now. It’s the age of “teh evil Toriez”.

What hurdles exist for the coalition rise a little higher with this week’s emergency budget. Despite both David Cameron and Nick Clegg saying during the election campaign that VAT would not need to rise as part of (their then separate) budget proposals, it appears increasingly likely that some kind of increase will be announced by George Osborne. This could cause the fissures of tension within the coalition to split open like a crack in a Scottish girl’s bedroom.

VAT is not the fairest tax in the land; it does not discriminate as it increases the cost of almost all goods and services. To increase VAT, as is likely, seems one good way of making a dent in Labour’s legacy, the record national debt approaching £900bn. With the age of “borrowing money to pay off the debt” now forcing its consequences on us all, money raised from cost cutting and tax rises must hit all taxpayers to be fair. I welcome the proposals to freeze Council Tax. Now all we need to do is ditch it completely.

This country could not afford to keep Labour in power. We could not afford to borrow money to repay debt forever. There is still the danger of the UK being tipped into a Greek-style economic disaster area; the coalition needs to do what it can to drag us back. Increasing Capital Gains Tax to 40% is one way to recoup lost revenue; those who benefit from their capital gains can afford to take the hit that lower paid people cannot through a VAT hike. There has to be fairness. I would prefer VAT not to increase – I said so at the launch of the coalition on this blog – however nobody can be in denial about the struggle ahead as income revenues fall, inflation rises, unemployment remains high.

I hope that the Budget speaks with a Liberal Democrat accent; the increase in income allowance and removal of child tax credits from those whose combined income is too high to justify the cost being two I would welcome. There has to be fairness in these tough times.

An increase in VAT would be a severe hit; the economy is in trouble, cuts need to be made, spending needs to be prioritised. I am unsure that VAT, which effects middle and low paid people disporpotionaly more than those on higher incomes, is the best tax to target at the moment.