Clause 66 — VAT: refunds to certain charities

Part of Bill Presented – in the House of Commons at 3:30 pm on 25th March 2015.

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Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 3:30 pm, 25th March 2015

If the hon. Gentleman gives me a few minutes, I shall get on to that point very shortly. He will understand that the past performance and form of the people who sit opposite me today, the Conservatives, is the clearest and surest indicator. Unfunded tax cuts have already been promised and spending plans have been made that require a Government to cut further and faster in the early part of the next Parliament than they have in this Parliament, and that is the clearest indication we can get. They can do nothing else but put up VAT; that is their tax of choice when it comes to raising the tax revenues they are looking for.

As I have said, the independent Institute for Fiscal Studies has said that the Government’s Budget plans mean that spending cuts after the election will be twice as deep as anything seen in the past five years. The cuts will go deeper and be made faster in the early part of the next Parliament than we have seen during the past five years. In reality, that will translate into extreme cuts to our crucial front-line public services, such as the police, defence and social care. The cuts will be so deep that they will be almost impossible to achieve, first, without putting the NHS at risk, and secondly, without making a further rise in VAT on the Tories’ watch simply inevitable.

Not only do the choices that the Government, and the Conservatives in particular, have made about spending and deficit reduction make such a VAT rise inevitable, regardless of the Prime Minister’s bluster today they are ingrained in their collective DNA. Before the 1979 general election, the then shadow Chancellor Geoffrey Howe said:

“We have absolutely no intention of doubling VAT.”

He specifically talked about doubling it. In his first Budget, however, he raised VAT from 8% to 15%. Conservative Members may take comfort from the fact that eight times two is 16, not 15, but they should not be proud of a seven percentage points rise in VAT or show off about its not being the eight percentage points rise that it might have been, given that such a rise had been absolutely ruled out and that there was no intention to double VAT. [Interruption.] Such a point brought no comfort to people who ended up paying the 15% rate of VAT, despite what the Financial Secretary, who is chuntering from a sedentary position, seems to think.

In 1991, Chancellor Norman Lamont increased VAT from 15% to 17.5%, claiming that his approach was “consistent” with the “strategy for tax reform” first set out by Geoffrey Howe in the 1979 Budget. Chancellor Lamont was correct that the approach was consistent: it was consistent with the approach of raising VAT rather than doing anything else. It seems that that approach may have slipped his mind, because just a year later, before the 1992 general election, Norman Lamont told Parliament that he

“again made it clear that the United Kingdom has no intention of changing our VAT rate.”—[Hansard, 13 June 1991; Vol. 192, c. 627W.]

That promise was reiterated by the former Prime Minister John Major, when he promised Parliament:

“There will be no VAT increase. Unlike the Labour party, we have published our spending plans and there is no need for us to raise VAT to meet them.”—[Hansard, 28 January 1992; Vol. 202, c. 808.]

He also said that year that he had

“no plans and no need to raise extra resources from value-added tax.”

The arguments then are almost exactly same as those we are hearing now.

Will Government Members remind us what happened after the 1992 election? There are no takers, because they know the answer: the Conservatives remember their consistent approach to raising VAT. The then Chancellor introduced VAT on domestic heating and fuel in the 1993 Budget, phasing it in at 8% from 1994. When he became Chancellor in 1993, Mr Clarke refused to reverse that increase saying that

“no one is going to die from VAT on heating.”

That is a very bad way of making a point, because people have in fact ended up dying from the cold. We know that people, the elderly in particular, often have to choose between heating their home and eating. Had it not been for a Labour defeat in the House of Commons, under the Conservatives we would have seen VAT on electricity and gas bills increase to 17.5% in April 1995.

Twenty years later we find ourselves listening to a familiar story. Before the last general election, the Prime Minister, the then Leader of the Opposition, said:

“We have no plans to put up VAT, it’s not part of our plans.”

I like the double emphasis: say it twice, and that might make it true. The Chancellor, the then Shadow Chancellor, said:

“The plans we set out involved around 80 per cent of the work coming from spending restraint”— cuts—

“and about 20 per cent from tax increases. The tax increases are already in place, the plans do not involve an increase in VAT.”

So such a rise was ruled out by the Prime Minister and by the Chancellor when they were in opposition. However, just weeks after taking office, like all the former Conservative Chancellors before him, the current Chancellor increased VAT to achieve his plans of 20% consolidation coming from tax increases and 80% coming from spending cuts. He said:

“To achieve that additional tightening while maintaining the right ‘four-to-one’ balance between spending and taxation means that I have to announce further tax rises today. On 4 January next year, the main rate of VAT will rise from 17.5% to 20%.”—[Hansard, 22 June 2010; Vol. 512, c. 177.]

There is no doubt that such a rise has hit family budgets hard. Despite knowing that that would happen, and that there would be a huge impact on the economy as a whole, the Chancellor chose to do what every Conservative Chancellor has always chosen to do—put up VAT. That is why we can say so emphatically—I say this to Liberal Democrat Members in particular—that if the Tories are elected at the general election in just a few weeks’ time, they will do it again. It is in their collective DNA, and ruling it out but then doing it is precisely what they have form for. That is their history, and I believe that they will honour their history if they are elected.

Analysis produced by the Treasury in July 2010 showed the estimated impact of a one percentage point rise in the standard rate of VAT. That analysis means that we know, for instance, that in the past four years the Government’s VAT rise has cost a single pensioner £500, a one-parent family £900, a pensioner couple £1,100 and a couple with children £1,800.