Who can you trust on fairness and VAT?
I enjoyed the hustings with the South Lakes Federation of Small Businesses on Monday night, even though it became a bit of a ding-dong at times. I took the punches that 13 years of government can generate for some people.
However, the most telling comment, I thought, passed with little reaction: “the firm commitment not to increase VAT” given by Gareth McKeever. Of course, in the event of a Conservative government, Gareth would only be able to deliver on this commitment if he is appointed Chancellor by David Cameron. I note that the Shadow Chancellor, George Osborne, failed to insert this firm commitment into the Conservative manifesto. Still, Gareth seems an impressive chap and has a good grasp of business, developed over a career at Morgan Stanley, and George Osborne continues to fail to convince, so, may be, Gareth might be preferred as Chancellor to George in the event of a Conservative government. Still, should either of them or any other Conservative be so privileged, they’d have to confront the inescapable economics that the Institute for Fiscal Studies have spelled out. Today the Telegraph report:
“Last night the independent Institute for Fiscal Studies said it was likely the Tories would have to raise taxes during the next Parliament to pay for tax cuts the party has already committed itself to, including National Insurance, council tax and tax breaks for married couples.”
As the Conservatives have failed to match Labour on National Insurance, this Conservative tax position alone would require taking VAT to 23 percent to fill the £30bn tax hole it creates.
Labour has targeted, as far as possible, the tax increases that we see as necessary to correct our public debt on those with the broadest shoulders: witness our tax on bankers bonuses and the 50% income tax rate on those earning over £150,000. However, if we want to control this debt, while protecting frontline services, we need to also apply some tax increases more broadly across the population. This leaves a limited number of options, with National Insurance and VAT being prime candidates.
Labour has chosen to increase National Insurance as VAT increases hit the poorest hardest. The Conservatives have made much of opposing our position on National Insurance and senior Conservatives have praised the virtues of VAT.
Something has to give: Are the Conservatives serious about addressing public debt? I thought that was the whole point of their austerity Britain pitch and, I agree, public debt does need to be addressed, but I want this to be done in the fairest possible way. Perhaps, the thing that has to give is that the Conservatives are less keen for public debt to be tackled in a fair way? But they say they want to protect frontline services, particularly in health and education. If this is so, surely they have to look at a broad based tax increase: Which will it be National Insurance or VAT? George, who is the Shadow Chancellor, has already given us his firm commitment on National Insurance, and Gareth, who isn’t, has given us his firm commitment on VAT.
However, I stress, something last to give: The Conservatives are either not serious about tackling public debt, in which case they are irresponsible, or they are not serious about doing so in a fair way that protects front line services, in which case they are heartless, or Gareth’s firm commitment not to increase VAT isn’t so firm, at least as far as George is concerned. It’s only by relaxing Gareth’s firm commitment on VAT that I can square the circle of Conservative economic policy and, even then, I conclude, that the Conservatives would prefer to use a tax (VAT) that hits the poorest hardest, rather than a tax (National Insurance) that spreads the burden more evenly. The contrast with Labour’s approach, rooted in our values of fairness, is clear.