Monday 14 December 2009

Tory options on VAT: lessons from history

ConservativeHome are asking how the Conservatives should address Labour's claim that they plan to put up VAT.

As Guido Fawkes summarises:

[Tim Montgomerie] makes five suggestions: admit VAT will rise to 20%, time limit it, ameliorate the regressiveness, promise a focus on cutting the deficit, launch a growth manifesto.

Fawkes suggests another alternative: not putting up regressive taxes.

Still another Conservative option would be to deny it, and to do it anyway.

David Cameron recently described himself as basically a Lawsonian, in preferring flatter taxes and (regressive) indirect taxes to direct (progressive) ones. So I wonder whether he and George Osborne might this time reach for the Geoffrey Howe playbook on this one.

Here is a reminder of how the Conservatives dealt with the VAT issue ahead of the 1979 election, as recounted on Next Left previously in another context.

Nick Timmins offers a detailed account of How the Tories kept secret of 15% tax hike, discussing an increase from 8 per cent to 15 or 17.5 per cent in February 1978, and agreeing a secret policy of a 15 per cent rise immediately after the election.

Despite this the Daily Mail, with official CCHQ encouragement, attacked Labour claims of a secret Tory plan to double VAT as one of “Labour’s dirty dozen lies”.

As the FT's Alex Barker reports in his account of 'legendary Geoffrey Howe dodge, the Chancellor in his memoirs rejected the idea that it was misleading to state that “we have absolutely no intention of doubling VAT” during the campaign:

"We had no difficulty denying it. For there was no prospect, on even the most gloomy of expectations, of our having to go beyond a rate of 15 per cent. Some critics afterwards thought it pedantically misleading to rest our case on the fact that twice 8 per cent (the then basic rate) was 16 and not 15 per cent ..."

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