New Clause 2 — Rate of VAT

Part of Finance (No. 2) Bill – in the House of Commons at 2:15 pm on 18 April 2013.

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Photo of Albert Owen Albert Owen Labour, Ynys Môn 2:15, 18 April 2013

I am grateful for that clarification. I recall that Labour Front Benchers said at the time that the proposal was specific to one thing, but this is a flexible measure. We can exempt certain goods from it. Yes, there are the European directives, but we could do this immediately and in doing so send out a positive message to the country and the business community and increase footfall in our shops and high streets.

The argument about reducing tax and increasing yields is perfectly legitimate. Some say that reducing corporation tax automatically boosts business, but it also results in a drop-off in the money that the Treasury takes. Nevertheless, it seems to be a favourite of the Conservatives, and I, too, support it. I support having a low-tax economy and reducing many of these taxes, but we should be consistent and do the same with VAT. The increase in it was supposed to raise several billions of pounds, but it has failed to do so because spending has fallen.

I support the proposal to reduce VAT. Action is need and needed now. The Chancellor could do it, and if he wanted to, he could do it straightaway. I accept that the poorest in the country, on the lowest wages, will benefit from the change to income tax thresholds, but they will lose out overall. The TUC is not alone in making this point. The Institute for Fiscal Studies has said that the combined tax increases, of which there have been several, both direct and indirect, will make the average family £900 worse off. If families are worse off in this country, spending is reduced and the economy is bound to contract. That is basic economics. We need to stimulate the economy, and one way of doing it correctly is to reduce VAT temporarily from 20% to 17.5%. Let us get the economy moving. The Chancellor has the power to do it, and he should support the new clause.