Nick Clegg reveals Tories’ £13bn VAT bombshell

For the past week, the Tories have been decrying Labour’s plans to raise National Insurance, pledging to reverse the rise but with a startling lack of clarity about how they will pay for it – beyond vague talk of ‘efficiency savings’, the kind of fantasy finance David Cameron and George Osborne would be quick to scorn if other parties tried it on.

Today Nick Clegg is showing that NI cuts may be popular with business – but they have to be paid for by someone, and the most likely people to pay the price of the Tories’ cuts will be ordinary voters through increases in VAT. Here’s the press release (and accompanying billboard poster) which the party has just released:

    *****
    Nick Clegg reveals Tories’ £13bn VAT bombshell

    Liberal Democrat Leader Nick Clegg today revealed the £13.4bn VAT bombshell at the heart of the Tories’ tax plans.

    Analysis of the Conservatives’ proposed tax cuts or reversals shows that they will cost over £13.5bn a year in 2011-12 prices – yet just £100m has been specifically identified to fund them.

    This leaves a £13.4bn black hole, equivalent to a 3% rise in the standard rate of VAT. This would mean an extra tax of £389 on the average household.

    The Liberal Democrats have fully-costed plans to raise the starting threshold for income tax to £10,000 – this would put £700 back in the pockets of the vast majority of people, and lift around 4m of Britain’s lowest earners out of paying tax altogether.

    It would be funded by ensuring the very well-off pay their fair share, through measures including:

      * taxing capital gains as income
      * a mansion tax on properties worth over £2m
      * giving tax relief on pensions only at the basic rate
      * tackling tax avoidance

    Commenting, Nick Clegg said:

    Liberal Democrats have costed, in full, our proposals for tax cuts. We can tell you, penny for penny, pound for pound, who pays for them. We will not have to raise VAT to deliver our promises. The Conservatives will. Let me repeat that: Our plans do not require a rise in VAT. The Tory plans do.

    “Their tax promises on marriage and jobs may sound appealing. But they come with a secret VAT bombshell close behind.

    “So if you’re on an ordinary income, you have a choice. If you want your taxes to rise: vote Labour or Conservative. If you want your taxes to fall: choose the Liberal Democrats.”

    *****

And let’s remember that the Tory plans are a complete U-turn on their promise to put deficit reduction at the heart of their economic programme.

Think this is all Lib Dem spin? Well, let’s remind ourselves of what the Institute for Fiscal Studies said just last week:

The Conservatives claim that the spending cuts can, in effect, be rendered painless by efficiency savings that they say their advisers have identified. Whether or not that is true, using the bulk of these spending cuts to finance the NI cut means that they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by. Reducing the deficit more quickly than the Government plans to will therefore require even greater cuts to public services spending, or to greater reliance on welfare cuts or tax increases that might be as economically costly as the NI increases they are seeking to mitigate.

The message is clear. Yes, whoever forms the next government could choose not to proceed with the increase in National Insurance. But let’s not pretend that any tax cut can be achieved by using fewer paperclips. Decreasing taxes like NI will either mean higher than budgeted for cuts in public spending, or an increase in taxes elsewhere.

The Tories might have been buoyed up by their tax-cutting tactics in the past week. The real question is whether Messrs Cameron and Osborne have, once again, put tactics ahead of strategey.

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21 Comments

  • Anthony Aloysius St 8th Apr '10 - 10:59am

    Great. The campaign hasn’t even started yet, and the party is inventing Tory policies to attack.

  • Malcolm Todd 8th Apr '10 - 11:23am

    Where have you been, Anthony? The campaign started on Tuesday. All halos were deposited in the one-month lockers by Wednesday morning.

  • It does seem a wee bit strawman-ish to assert that they’re going to raise VAT, one of the least popular taxes, when it’s as likely they’ll squeeze the money from elsewhere. It’ll still cost people more than they’re claiming, but they can so easily rebut the VAT bit. Maybe this is the point and it’s intended to provoke.

  • Anthony Aloysius St 8th Apr '10 - 11:56am

    Stephen

    Of course it would be fair to point out that Tory plans will require greater cuts to public spending and/or tax rises than Labour or Lib Dem plans. Personally I think it would be more effective to highlight the likelihood of cuts in public services – though with his own talk of “savage cuts” Clegg has seriously compromised that line of attack.

    But to state as a fact that the Tories will raise VAT by £389 is sheer invention.

    Do you not see that if it’s OK for the Lib Dems make up Tory policies, then it’s also OK for the Tories to make up Lib Dem policies? Don’t you think the public reaction to this kind of nonsense will be “you’re all as bad as one other”?

  • Anthony Aloysius St 8th Apr '10 - 12:02pm

    “Where have you been, Anthony? The campaign started on Tuesday. All halos were deposited in the one-month lockers by Wednesday morning.”

    Parliament hasn’t even been prorogued yet – the election campaign doesn’t actually start until next week.

    And it’s been a hell of a long time since I saw a politician who could credibly sport a halo.

  • “If you want your taxes to fall: choose the Liberal Democrats.”

    Really? Can I borrow that crystal ball? I just need some lottery numbers

  • David Allen 9th Apr '10 - 5:10pm

    “The Lib Dems are quite right to keep pointing out that one way it could be funded is through a VAT hike”

    Precisely. That’s what we should have said. It’s not what we did say.

    Given the starting position that the Tories are massively trying to con the public and we simply need to point that out, it takes a bit of campaigning genius for us somehow to turn that around, and achieve a genuinely shifty look for ourselves!

  • so will the tax rate be 20% if you earnings are above £10.000 and is a state pension classed as earnings and will be lumped onto my earnings and still pay 20% ?

  • Derek Watson 22nd Jun '10 - 1:29pm

    I wonder if the people who commented in this article would care to revise their comments in light of the emergency budget in June 2010?

  • Nim Chimpsky 22nd Jun '10 - 2:31pm

    Hmmmmm.

    I read the news today oh boy………JUNE 2010. Different Story. Thanks.

  • Nick was right! If only he was in the cabinet to stop them!

    Oh hang on…

    Can I have my vote back now, please?

  • Nim Chimpsky 22nd Jun '10 - 2:44pm

    Quite.

    This from May 2010:

    Tories ‘will raise VAT to 19.5%’ – leaked email

    * By Josh Hall
    * 6 May 2010

    According to the Daily Mirror, the email says: “The leadership has an undisclosed policy to announce a VAT rise to 19.5 per cent in the June emergency budget.

    “We will say that having taken power and scrutinized the finances, we now realise the size of the problem concealed by Darling/Brown and are forced to take drastic action to tackle the debt.”

    The conspiratorial tone of the email is likely to play poorly with voters, many of whom believe that the Conservatives have refused to be honest about their plans for spending cuts and tax rises.
    ———————————

    We ***will*** say………..that ***new info***…….which has been ***concealed***……has ***forced*** us to take action…..

    This is completely dishonest, obviously.

  • No longer a LibDem 22nd Jun '10 - 3:50pm

    This is the final straw for me – Nick Clegg has shown that he is not only a hypocrite but that he was always a Tory at heart. There is no longer a LibDem party there are just Tories.

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