Labour tax policy in chaos following publication of plans to increase VAT

Guido had the evidence: one of the budget documents talking about increasing VAT to 18.5% in 2011-12. Labour’s response? It’s a horrible editing blunder and that isn’t their plan, that bit shouldn’t have been in the paperwork, and so on.

Vince Cable has nicely summed up the situation:

This is either gross incompetence or duplicitous.  It may be that this may be one option that they didn’t pursue.  But if that is the case, why did it find itself in public documents?…

There are two explanations: they did pull it and maybe one of the reasons that the deficit is so alarmingly large is that they realised that this wasn’t going to be politically palatable.

Another explanation and this is more negative, is that they still have this on the stocks for after the election.  This is probably their preferred option if they have to proceed with further tax rises. (Source: PoliticsHome)

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  • Clegg's Candid Fan 26th Nov '08 - 1:44am

    Vince Cable said:
    “… maybe one of the reasons that the deficit is so alarmingly large is that they realised that this wasn’t going to be politically palatable.”

    Just out of interest, can anyone point me towards any previous comments by Cable to the effect that the deficit was “alarmingly large”?

    The reason I ask is that I looked quite hard earlier today for his comments on the size of the planned government borrowing, and all I could find were vague platitudes about borrowing always having to rise during a recession.

  • Alix Mortimer 26th Nov '08 - 9:18am

    What’s interesting about this is that the Tories (assuming they get in) will presumably have to implement tax rises of some sort. And if they hit on VAT, they’ll be just as shafted as Labour after this. If I were some particularly devious Labour minister or other, I’d spend the next two years drip-dripping rumours of tax rises on different taxes, creating a public outcry each time, so as to truncate the Tories’ tax options when they get in.

  • Who’d be a Conservative now?

    Just as it starts looking less likely that Cameron will get into government (predictors have swung back recently and are now in favour of a hung parliament) they’re now trying to alientate their core supporters (even Hammond is endorsing our view that any tax cuts should be aimed at assisting the less well-off)!

    It seems the spinners have spun themselves into a massive strategic mess.

  • Clegg's Candid Fan 26th Nov '08 - 12:12pm

    I really can’t make out whether Cable thinks the additional borrowing is “alarmingly large” or not large enough.

    In this article in the Independent, he seems to be asking why people are making such a fuss over a “fiscal stimulus” of less than 2% of GDP when the USA is discussing one of 4%, and he concludes “the central issue remains this: whether the actions being taken on interest rates, bank lending and fiscal stimulus match the scale of the economic disaster now unfolding. I fear they may not.”

    I must say I don’t remember Cable saying anything at all about the need for a fiscal stimulus at the party conference a couple of months ago. It seems to be very much an idea that the party has adopted on Labour’s coat tails.

  • Bibliophylax 26th Nov '08 - 1:44pm

    Minor quibble, but reading the statutory instrument implies VAT goes back to 17.5% on 1 December 2009, whereas the press talks about 2010. What’s the VAT rate in December 2009? I smell rush job.

  • Um, CCF, maybe you didnt notice the huge financial meltdown that happened between the conference and now? You know, the one that caused all the panic and the realisation that this was something really big that would require globally co-ordinated action? You know – the one in October? No? What’s that, you were in Mongolia? Oh, OK.

  • Alix Mortimer 26th Nov '08 - 1:53pm

    CCF, hm, yes, but I’m not really sure it’s relevant to point out that Cable wasn’t advocating fiscal stimulus at conference. The need itself hadn’t taken full shape (this was pre the bank crash, remember, never mind the bank bail-out).

    One thing VC was advocating at the time, for example, was that there shouldn’t be a panic cut of interest rates. Then over the next couple of weeks the FTSE fell by 2000 points and his advice changed. I recall Danny Finkelstein made a right ass of himself trying to paint that as a U-turn.

  • Clegg's Candid Fan 26th Nov '08 - 2:25pm


    The fiscal stimulus isn’t meant to be a solution to the problems of the banking system though, is it? It’s an attempt to alleviate the impending recession, which we knew all about at the time of conference. And if we believe the propaganda, Vince Cable foresaw all the problems we’re facing several years ago!

    But in any case, it’s not only a question of not having said anything about this in September. Until only a few days ago, the party line was that it would be wrong to fund tax cuts through additional borrowing. For a time Clegg seemed to be saying it would be OK to borrow to fund capital spending, but even that has been the case for only perhaps 2 or 3 weeks.

  • Could it not have bee leaked to cajole the Tories into adopting this circular approach, leaving them looking pedantic and toothless?

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