Sunday, 3 January 2010

V is for VAT

A continuing series of spelling out Conservative plans Part 3.

At the end of last year I noticed that Iain Dale had said that VAT would rise to 20% in his predictions for 2010. Speaking yesterday David Cameron said:

"Britain needs responsible economic policies that deal with our debts, so we have stability to create jobs and keep mortgage rates and taxes lower."

However, in today's Sunday Torygraph the last Conservative Chancellor Kenneth Clarke said:

"It is something that every Conservative tries to avoid but I didn't avoid it when I was getting us out of recession before [in the 1990s]. Coming out of a recession when you have such a severe deficit you can't rule out putting up taxes.

"If you can't get it down quickly enough, in order to maintain the confidence of the markets and to create conditions for growth and employment, then you may have to look at tax increases."

When asked specifically about the fact that many commentators have sad that the Tories will but up VAT to 20% even temporarily he went on to say:

"When you're the most indebted country in the western world, and people are talking about looking at the credit rating of the country, and we're not sure that foreigners are going to buy gilt-edged bonds to finance our debt, then you cannot start promising you are not ever going to start increasing taxation.

"We will try to avoid it, we'll minimise it if we have to by having proper control of public spending, which we haven't had in this country in the last 12 years."

So the Tories look set to carry on the Labour policy of increasing regressive taxes. The tax policy that has led to the poorest paying a considerable higher proportion of their income in tax than the richest. VAT affects everyone at the same rate on the same items, there is no threshold to help the poorest escape it. National Insurance which has been Labour's toy in recent years does have a threshold, yet even those who are on the 'minimum rage' are above that threshold. Surely that cannot be right.

The Liberal Democrats are promising to sort out the tax system in this country in a fair way. We promise to raise the tax allowance to £10,000, it currently stands at £6,475. Somebody currently on a 37 hour week at the full minimum wage (currently only required for those over 22) would be earning £11159.20. So 42% of their so called working wage is taxable for both Income Tax and National Insurance, plus anything they purchase which has VAT is now taxed at 17.5%. The Lib Dems while not completely removing the poorest from the first two taxes will at least reduce that amount to 10.4%.

Yes as Kenneth Clarke did point out we are the most indebted country in the Western World and we do need to find a way to get ourselves out of that, but we need to be fair in who we affect by those decisions. We need fairer taxes, taxed that are based on the ability to pay. The concentration on VAT must be at the end of any changes to help pay our way out of recession. Yet it seems to be something that the Conservatives are contemplating very soon.

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