Tuesday, November 25, 2008

Labour Tries to Deny VAT Hike to 18.5%

There is no “hidden manifesto” – “everything is above board”.
(Gordon Brown - Sunday 23 November, quoted in the Times on 24 November)

I would lay bets that the government will have to put VAT up beyond 17.5% at some point over the next three years. Basic economics tell you that if the cost of the 2.5% cut is to be recouped you can't do that just by putting it back on in 13 months time. Robert Peston predicted that the new VAT rate would be 22.5%. He was wrong - but only on the detail.

It seems the Government plans to put the rate up to 18.5%, but only after the election has been and gone. How very strange. Not. The BBC has the full story HERE. The above graphic is from a document called EXPLANATORY MEMORANDUM TO THE VALUE ADDED TAX (CHANGE OF RATE) ORDER 2008 2008 No. 3020. The Government say that this was left in the document in error. George Osborne has been quick to seize the political initiative...

"This is Labour's secret tax bombshell. It explains why there is a black hole in the PBR. Because at the last minute Gordon Brown clearly decided to keep secret his plan to hit everyone with an extra tax rise to pay for his borrowing binge. Gordon Brown told us that he would have no “hidden manifesto” and that “everything is above board”. But these documents show that Labour was planning to deceive the British public, and will raise VAT on everyone after the election. Labour have a secret tax bombshell set to explode under the British people if they ever get re-elected. It tells you all you need to know about Gordon Brown and Labour."
Have you ever seen a budget unravel so fast? Well, OK, the last one did too, but it's a sure sign of a government in real trouble when this sort of thing happens.


kinglear said...

Of course the VAT will have to go up. TINA! I'm only surprised its by so little....

AndyR said...

So let me get this right... the government is going to spend the next 18 months doubling the national debt and bankrupting the country for a generation, and there is nothing that anyone can do to stop them?

I've never believed in using the "nuclear option" when it comes to British politics, but this is not politics... it's national suicide.

The Queen has to step in now and dissolve parliament.

If not now, then when?

Chris Whiteside said...
This comment has been removed by the author.
Chris Whiteside said...

I am beginning to seriously wonder if Brown and Darling have given up hope of winning the next election.

It's as if they are trying to simultaneously minimise the scale of an expected defeat and leave poison pills to sabotage the position of the next government by adopting every short term expedient in sight and leaving as many as possible of the bills to fall due after the next election.

In some ways it would almost serve Brown and Darling right if they won the next election and had to clear up the mess they're leaving - but the rest of us don't deserve to have our affairs mismanaged by this incompetent government for another five years.

Gordon said...

Sorry for using the comment section as a forum for me to ask questions that are only slightly related: EU legislation says we aren't allowed to reduce VAT below 15% - have they set an upper limit?

Thanks for any information.

plaggypig said...

Any sane government would leave VAT at 15%, in harmony with the rest of the EU.

I'm surprised nobody has yet pointed out that this change means the eradication of carousel fraud - something that has cost us billions over the years!

If they need to replace the lost revenues at a future date then I'd expect them to increase other forms of tax.

But Iain, I think much of the country acknowledges that the only way to get out of this debt mountain is to raise taxes later.

Labour has a credibility issue: 1) Stealth taxes - completely dishonest, much like many other Labour policies, 2) Unfair taxes on the poor and middle classes.

Will the Conservatives be upfront and level with the British public? We need higher taxes to pay for all the public services that we demand - shouldn't we expect our taxation levels to be nearer that of France, or possibly even Sweden?

Mark Thompson said...

I really can't understand why this is considered to be so newsworthy.

Of course the government is going to consider various ways in which to raise revenue later once the economy picks up. Frankly I would be surprised and a little disappointed if options such as a VAT rise had not been considered.

However what has happened here is typical of the way the Westminster echo chamber operates. Some bloggers have picked it up and expressed outrage, Cameron has chipped in with his claim that this is the government's secret plan. His claim that there is a "black hole" in the finances may or may not be true. Frankly at the moment, how the hell anyone has any idea what state the economy is likely to be in by 2011/2012 I have no clue. And neither do they.

I believe the government when they claim that they considered it and then dropped it. Would the opposition have preferred it if the government had not considered other options and just blindly picked the first thing they thought of?

There are much more substantial things for the opposition to engage with such at what actually was announced yesterday. Not what wasn't.

Iain Dale said...

Mark, one of the more hilarious comments of the day. For so many reasons.

Mark Thompson said...

Go on then. Why?

no longer anonymous said...

Mark, in response to your question, I would like to point to something you said:

"I believe the government"

Anonymous said...

@Mark: "I really can't understand why this is considered to be so newsworthy."

So here's a measure of the value of your opinion ... this morning the BBC (well known Labour luvvies) leads it's main news bulletins with this story.

Don't bother replying.

David Boothroyd said...

If the government had decided to increase VAT to 18.5% in 2011/12 in the PBR, it would have announced it then and suffered little or no criticism specifically for doing so. Therefore the suggestion that this is a 'hidden plan' accidentally revealed is ludicrous.

The fact is that governments have plans for everything and considers a whole large number of alternative proposals. In the 1993 budget Lamont offered Major the choice of putting VAT on fuel or on books and newspapers; Major opted for fuel. That didn't mean that there was a 'hidden plan' to put VAT on books and newspapers but you can bet there were lots of documents around Whitehall discussing how to do it if the government went with that option.

Mark Thompson said...

At November 26, 2008 8:18 AM , Blogger vervet said...

@Mark: "I really can't understand why this is considered to be so newsworthy."

So here's a measure of the value of your opinion ... this morning the BBC (well known Labour luvvies) leads it's main news bulletins with this story.

Don't bother replying.

I think I will bother replying actually.

If I worked for the BBC or was a Labour supporter then you might have a (vague) point but I am neither of these things.

The fact that the BBC is leading with this story proves my point (and somewhat undermines your point - if they were that sycophantic to Labour, surely they would be playing this down) as they are part of the Westminster Village with their plethora of political correspondants.

Your point is therefore utterly irrelevant. I was hoping for Iain, or someone else on here who feels so strongly that THIS IS TEH CONSPIRACCEEZ would actually engage with the substance of what I said rather than assume I am a Labour/BBC patsy and attack me for that.

So, is it right for governments to consider various options when putting together budgets?

Unsworth said...

@ David Boothroyd

So your position is that this is merely a 'discussion document'?

How crass.

dannyrye said...

oh no! government considers various options and decides to reject some shock. what a terrible disgrace. it makes a mockery of democracy....

This is really desperate stuff. government in trouble, Iain? You wish. The fact is that the Tories have nil to say and no idea what to do, so they cling desperately to rubbish like this. They are in fix, and you know it. Roll on 2010!

Primly_Stable said...

Funny how Osborne says a 2.5% cut in VAT is a piddling little move that will make no difference, but a 1% rise is a SECRET TAX BOMBSHELL THAT WILL DOOM US ALL!!!!!!

Mark makes good points, the evasive responses of the other posters only serve to prove how spot-on he is.

not an economist said...

To Mark,

Had this note about a VAT increase been sthg in a memo, internal e-mail or a mere working paper I could see your point. But its not. It wasn't just considered it was actually put into a draft version of an official document. To quote Nick Robinson:

"The document is an explanatory memorandum to the statutory instrument (legal document) that enacts the temporary cut in VAT."

So it wasn't "just considered". It was well thought thru and on the verge of being proclaimed actual policy. At the last minute Gord and Alistair changed their minds.

This raises the question about why they changed their mind so late in the process. Consider this in the context that commentators generally are critical of the assumptions made by the two of them about economic growth in the next couple of years and the speed at which the country can expect to pull itself out of recession. Basically they are considered to be too optimistic. I would humbly suggest that the two things are related - they changed their forecast at a late stage and so were able to delete the 18.5% VAT change aswell and still make their figures balanced.

I accept this is conjecture, but so is claiming the govt is telling the truth conjecture. I accept I may be wrong, but then so may you be wrong. Its called political debate. And that is what the Tory party is doing by raising this as an issue.

So in answer to your very first question - Yes - it is a newsworthy story. For the reason I state in this post.

David Boothroyd said...

No, Unsworth, it's not. The fact is that at all times the civil service prepares for various actions which governments might take, in order that they happen smoothly in the event that the government decides to support them. The relevant documents are drafted up and are often signed, but are then kept in reserve ready for when needed.

From the fact that no rise in VAT was announced, while a lot of other tax increases were, you can take it that this government will not be increasing the rate of VAT.

not an economist said...

To Oliver Drew:

"...to suggest that the Conservatives are the "do nothing" party is rubbish, and shows a lack of depth and imagination in his argument, whilst simply repeating the same blind "we are helping people" statement over and over again hoping we'll believe it!"

Its typical Mandleson/Campbell. They get a phrase like this and they repeat it time and again on the hassumption that eventually people will beleive it. The other one that gets on my wick is "Its the right thing to do". Yvette Copper was in an interview about a month or so ago talking about the bank bailouts and whetever question she was asked she started and finished with "Its the right thing to do".

Armchair Sceptic said...

We now know one of Labour's tax rises, and what else have they got in mind - basic rate income tax up from 20p to 25p? Or a 45p band to cover ALL HIGHER RATE TAXPAYERS? We should be told, after all this PBR/Budget was going to be "transparent".

Has the stockmarket fallen yet? :-)

Anonymous said...

Re: Queen dissolving Parliament.

Sorry folks you're about 400 years too late for that. Although it is not explicitly codified anywhere, it is generally accepted that the monarch cannot unilaterally dissolve Parliament. What powers the monarch retained after the Restoration were stripped away in the Bill of Rights of 1689 and the Triennial Act of 1694.

The Queen still has the right to 'advise and warn' ministers, but no surprise when I say they don't have to act on it.

And in case you're wondering, no the Queen doesn't even sign legislation, so Royal Assent is also a fiction.

Mark Thompson said...

To "not an economist".

You make a fair point about this exposing the governments internal workings and therefore making it more likely that the 18.5% change would have been considered above other things in the future. However David Boothroyd's point about documents like this being drafted in advance to allow things to go ahead smoothly once the firing gun is started also rings true. Frankly, we are never likely to know if your first point was true as the government are a lot less likely to do it now after the admin error and all the hoo ha that has followed it.

I would just like to make a few other points.

- I am not a member of the Labour party or a supporter of this government. I just think on this issue things have been blown way out of proportion. I get the feeling on this blog sometimes that unless you are dripping bile against the government then you are considered to be a patsy for them. This is not the case with me at all and it is a shame that (some) posters are happy to skip the points I made and just impugn my character or attack me on spurious points that are irrelevant.
- I also hate the way the government keep trying to characterise the opposition as "proposing to do nothing" which is absolute bollocks. Everybody who is paying attention can see that both major opposition parties have lots of ideas on what to do, they just don't always coincide with what the government wants to do. This is typical Brown (and Blair) behaviour. I remember Blair years ago saying things on the NHS like "you can cut spending, or you can {insert latest government policy}". Although he would not direvtly accuse the opposition of planning cuts, the implication would be there. A classic straw man argument. Posters on here and elsewhere are right to be annoyed about this as am I.
- The use of the term "This is the right thing to do" has rocketed in the last year or so, largely since Brown came in and I find this infuriating. It is being used to try and make it sound like TINA to whatever the latest government policy is, trying to stifle debate. Peter Oborne's latest book The Rise of the Political Class has a good section in it about the way politicians use language and this falls into that category. Unfortunately I have heard Tories also use this phrase, I suspect it will become standard for all parties and it is utterly meaningless.

One final thing, how come amongst all the debate about this I have not heard anybody seriously advocating cuts in public spending (once the economy recovers, not now of course)? I don't mean efficiency savings but actual cuts. I am far from being a right winger but I do run my own business and when times are tough, you have to look at the bottom line and justify all expenditure. Anything that can be cut, needs to be considered carefully. Yet no-one is saying this. Can it really be the case that all spending plans are untouchable? I appreciate that the Tories are scarred from many years of Labour screaming "NASTY TORY PARTY CUTS! SAME OLD TORIES!!" etc. but I think you are underestimating how much the country has changed in the current climate

Little Black Sambo said...

Sack the Government and put Hammersmith & Fulham Council in charge. Why wouldn't their methods work on a national scale?

Catosays said...

Mark, I have said before on this and other blogs that if you ain't got it then don't spend it.
A drastic cut in public spending...and I mean drastic.. coupled with a 10p reduction in Fuel Duty would have met with large scale approval...even from me and I'm about as Tory as you can get.

Unsworth said...

@ David Boothroyd

Yes, Yes, you really don't have to go through government processes for kids with me, thanks.

Just tell us why a document apparently signed off by a Minister saying the VAT rate will be increased is published, then? Some sort of 'clerical error', yet again? It's entirely unsurprising that this government is unable to keep control of these 'presigned' documents. They cannot keep control of anything at all - including their bowels it seems from the amount of crap they are talking.

And this 'government' will not be raising VAT for two reasons: a) It will not be in power and b) the projection is post a General Election date anyway. Even if NuLab gets back into power - which Heaven forfend - it'll be a different government, won't it?

Good Grief! Political Systems for Beginners, Chapter Two.

not an economist said...

To mark

However David Boothroyd's point about documents like this being drafted in advance to allow things to go ahead smoothly once the firing gun is started also rings true. Frankly, we are never likely to know if your first point was true as the government are a lot less likely to do it now after the admin error and all the hoo ha that has followed it.

I know coduments are preprared in advance but I would argue that teh idea would have been almost a goer for it to have got into that document. Gotvts do not put every tiem of crap they consider into draft docuemnts. What would be the point? No - its the idea msot likely to be a goer that get into them. Then a few are tasken out.

As for your second point - we will never know if I am right or wrong. Well that applies to you aswell sp I am not sure what you are trying to say here.

Also, if Labour do get relected - which I think they will - they may very well introduce this measure. This event will be spun away by Mandy and Campbell the way they try to rewrite history all the time if they need to.

Th rest of your post seem directed at me. I don't think I did accuse you of being a govt supporter did I? I tried to avoid cheap shots but if you feel I didn't then I apologise.

And thanks for responding.

not an economist said...

Actually I think the Tories should stop banging on about this VAT hike. It can't be long before Alisdair C and Mandy wake up and start replying by pointing out the increase in VAT that the Tories introduced during Thatcher's first administration (79 to 83(?)). Afterall, they keep referring to Thatcher's comment about criticising sterling.

Unsworth said...

@ not an economist

Just remind us, how long ago was all this? NuLab's attacks are entirely irrelevant. We're in uncharted territory and NuLab doesn't have a map, nor a compass of any sort - moral or otherwise.

not an economist said...


Personally I agree with you. That said, to my mind Mandy and Camopbell are very skillfull at making these things stick. However old the events they are referring to are.

Its no coincidence that their return to govt has coincided with such tactics and I get the impression that they have been quite effective. And we/the Tories have to be mindful of that.