Tories plan VAT tax hike
Posted by Ian at 9 01 PM on Saturday, August 8
THE Tories plan to hike VAT to 20 per cent within days if they win the next General Election.
Shadow Chancellor George Osborne will also announce massive job cuts to the civil service — scrapping entire government departments — to slash public spending, the News of the World can reveal.
The two measures would be the main elements of an Emergency Budget held days after a Tory election victory.
Economists predict increasing VAT to 20p in the pound would raise £20 billion over four years.
And Mr Osborne believes his civil service plan — involving scrapping large quangos, merging government departments and dramatically reducing manpower — would save £80 billion over the same period.
The combined measures would then allow him to reduce government borrowing.
But raising VAT would increase prices — and could trigger inflation. A similar move by Baroness Thatcher’s first government in 1979 and again in 1981 slashed the government’s spiralling debt.
The Tories fiercely opposed Chancellor Alistair Darling’s decision to cut VAT from 17.5 per cent to 15 per cent last December. It was designed to boost shoppers’ spending power as a way out of recession, but has had less effect on the economy than was hoped.
The temporary cut is expected to cost the Treasury £12.5 billion.
Britain’s 15 per cent VAT rate is among the lowest in Europe, and a 20 per cent levy would place the UK either on par with or still below rates in Italy, Portugal, Sweden, Poland, Norway and Belgium.
Internal party polling indicates voters would support limited tax rises provided public spending was slashed and they were shown to be finally getting value for money.
Nearly two fifths of voters favour a roughly equal split between tax increases and cuts in spending to reduce government borrowing and debt.
Shortly before his summer holiday, Tory leader David Cameron gave his strongest hint yet that taxes will rise.
He said: “In saying to the country that we need to reduce public spending, we need to get the budget balance under control, we’ve got to be able to demonstrate that this is fair and seen to be fair and that everyone is putting their shoulder to the wheel and sharing in the difficult decisions.” But raising VAT marks a complete U-turn.
After taking over as Tory leader, David Cameron promised to cut stamp duty, scrap inheritance tax and reintroduce a married families’ tax credit.
But the recession and spiralling government borrowing has forced his change of plan. The News of the World revealed last month that the cuts had been put on hold.
And a member of the Tories’ Treasury team last night told us: “We have to stop the uncontrolled borrowing and repair the public finances before we go bust.”
Last night a Tory Party spokesman said no final decisions on tax policy had been made. However, he said he did not know about discussions between members of the Shadow Treasury team and business leaders over future tax plans.
He claimed: “There are no plans for such a rise.”