20% VAT Whoever Wins Is that Fair?

The ticking time bomb of VAT appears to be rearing its head again and neither of the main parties appears to have a diffusion team looking at fair ways to avoid the explosion.

Having just learnt myself of my annual pay review this news in The Times makes disheartening reading:

Though Labour and the Tories have denied having any current plans to increase VAT, neither will rule it out and The Times understands a rise in the tax is being considered by both parties.

The rate of 20% is bound to hit the lowest paid. My pay review justified the non-increase that the Retail Price Index (RPI) was currently averaging -0,5% but a rise in VAT to 20% as envisioned by both will effect everyone. If this is done before the next round of annual reviews it could leave a lot of people struggling to make ends meet as most of their purchases would rise by 2.1% as a result of the additional 2.5% increase in VAT.

Of course VAT is a regressive tax, it is applied to most of your purchases. Yet Alistair Darling has already ruled out either raising income taxes or increasing the scope of VAT, but not raising the sales tax. Earlier on this year I looked at the promised the Tories weren't prepared to make on the area of VAT.

Whilst the Liberal Democrats have been honest and fair about their tax proposals apparently their has debates within the Government about whether to life the opaque nature of their pre-budget report. As you would expect about a Labour party that has brought in 13 years of stealth tax increases they're not sure whether to be honest about increasing VAT before the election.

Simple answer the reason Labour are having such a debate is that people are expecting tax increases to help pay for the economic mess. But they'd like such increases to be fair, which will not be the case with ignoring progressive increases in income tax and lumping all your eggs on a VAT increase.

Information

The following underlying framework of principles underlies all the Liberal Democrat tax proposals, shame the other two parties aren't as principled.

• Fairness – tax policies should be equitable and ensure that the payment of
  taxes is linked proportionately to people’s ability to pay.
• Simplicity – tax policies should be clear to taxpayers and new policy should
  aim to eliminate complexity in existing legislation.
• Certainty – tax policies should not be retrospective and should provide the
  taxpayer with certainty over the correct treatment.
• Efficiency – tax policies should provide revenue to the government on an
  efficient basis and minimise tax leakage.
• Transparency – the reasons behind the introduction of new tax policy and
  the intention of spending of revenue raised should be clearly stated to the
  taxpayer.
• Competitiveness – UK tax policies should be internationally competitive.