It is thought that the Emergency Budget tomorrow might include a hike in VAT. That would take more money out of the pockets of ordinary families and be bad news on two key fronts:
- VAT hits the poor twice as hard as the rich. Hiking it would mean more poverty and more benefit dependency. That would be hard to square with David Cameron's statement before the election that a Conservative Government would "make sure the system always considers the effect of any policy response on the position of the poorest in society."
- While the Conservatives and the Liberal Democrats pointedly didn't rule out increasing VAT, they went out of their way in the election campaign to argue it wasn't part of their plans. The Liberal Democrats even had a poster accusing the Conservatives of having a black hole in their plans that would mean a "VAT bombshell", a charge the Conservatives denied. Neither party has any mandate for this measure at all.
Here is a video we're releasing today about a VAT hike, how the coalition has no mandate to put it in place and shouldn't impose a big new tax on the poor.
There are alternatives. Even if the rate is hiked to 20 per cent that will raise around £12 billion according to the HMRC ready reckoner. Just yesterday, the Think Tank blog reported 2020Health's report about how to save £12 billion in the NHS budget that the coalition are currently protecting. In our research and for the book How to Cut Public Spending we've set out how to save £50 billion and there are plenty of savings left from tackling specific budgets, cutting back on middle-man organisations and restraining public sector pay and perks that the coalition could take up. Even the Regional Development Agencies have only been cut and not abolished so far.
Spending cuts, not tax hikes are the way to deal with a fiscal crisis caused by massive increases in spending over a decade in which taxes were increased, not cut.