Finance Bill debate: VAT
28th June 2011
Referring to the situation unfolding in Europe, David Gauke highlights the importance for countries with large deficits to have a credible plan to deal with their debts and the important role the VAT increase plays in that.
Mr Gauke: We have had an interesting debate. I must admit that I am surprised that on the subject of VAT cuts I am responding principally to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) and that it is he who tabled the new clause calling for a VAT cut. After all, it was only on 16 June that, with much fanfare, the shadow Chancellor announced the Opposition’s flagship policy of a cut in VAT—the first paragraph to appear on the blank sheet that is Labour policy. Yet with an opportunity to legislate for that very policy today, the official Opposition failed to get around to tabling their new clause until the day before the debate—too late for selection.
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We could speculate as to why that is the case. Perhaps the Labour party has reconsidered its policy. After all, by the time of Treasury questions on 21 June the shadow Ministers were refusing to raise the policy in the Chamber, and on 22 June various shadow Ministers were quoted in the Financial Times as complaining about not being consulted, and were admonished for doing their politics on the record. Of course, the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), failed to support the policy on eight occasions. In an Opposition day debate, Labour Back Benchers failed to mention it at all. Perhaps the policy has been quietly dropped, replaced by the more modest new clause 10, which we heard from the right hon. Member for Delyn (Mr Hanson) is seeking an assessment of the impact of the VAT rate on UK economic performance.
Of course, there was new clause 16, which was not selected. Was the delay in tabling it because of indecisiveness? Do the Opposition want to put forward that policy or not? Perhaps there was a delay in the process as it was cleared through the shadow Cabinet—we know how the shadow Chancellor likes to do that. Perhaps it was waiting for consent from the right hon. Member for Dulwich and West Norwood (Tessa Jowell). Or perhaps it was incompetence. It is, after all, difficult in opposition. There are no officials to help, and there are deadlines to meet. Somehow, however, the formidable Westminster machine that is Plaid Cymru managed to get its new clause in on time. When the shadow Chancellor was appointed, we heard much about how he was a ruthless street-fighter, how he was endlessly harrying the Government, how he would set the agenda and how he would imaginatively exploit parliamentary opportunities to the full. Six months on, he cannot even get his key new clause tabled in time. This is the man who wants to run the economy.
On the subject of VAT policy, what have we heard from the official Opposition? First we learned that the right hon. Member for Edinburgh South West was in favour of raising VAT to 19%, then the official Opposition abstained on the increase to 20%. Then they had a policy of cutting VAT on road fuel, which turned out to be illegal, so whereas we got on with cutting taxes on road fuel, the Opposition would have engaged in endless negotiations on a derogation. Then, last week, we heard the policy of cutting VAT on a temporary basis, even if the Opposition are not entirely sure about it. This week we learn that they are not going to vote in favour of that policy. What the hon. Member for Carmarthen East and Dinefwr said is correct—his new clause would be a temporary policy, yet the official Opposition are not going to support it. In other words, in 12 months we have had three shadow Chancellors and five different policies on VAT.
I can be clear about our position. I know that hon. Members have heard this before, but I will say it again. This Government inherited an exceptional fiscal challenge—the largest deficit in post-war history, and the state borrowing £1 in every £4 that it spent. We have undertaken a programme of fiscal consolidation, and the VAT increase is a necessary part of that plan. Current economic conditions and events in Europe reinforce the view that fiscal consolidation is the right course of action for the UK, and the evidence shows that the plan is working. The economy is growing and will grow further. We have the advantage of interest rates on a par with Germany’s, even though we are borrowing more than Greece and Portugal.
Mr Robinson: How can the Exchequer Secretary say that the economy is working and growing? It flatlined for six months, and according to his own Office for Budget Responsibility, the prognosis is that we will borrow £46 billion more over the period of the deficit reduction plan, and that unemployment will rise by 200,000 over the same period. How can he pretend that the plan is working?
Mr Gauke: The fact is, the economy grew in the first quarter of this year, after the VAT increase, unemployment fell this year at the fastest rate since 2000, and borrowing is falling. The plan is working. I am afraid that Opposition attempts to talk the economy down are not working. In difficult international conditions, the economy is growing.
Raising the rate of VAT was a difficult decision to take, but it was the right decision, and the responsible thing to do. The Opposition proposal is reckless: an unfunded VAT cut to the tune of £12 billion a year, and £51 billion over the Parliament. How do the Opposition propose to fill that gap? Would they revert to their tax on jobs? Do they think that that would stimulate growth?
Deficit reduction, in which the VAT increase plays an important role, is a prerequisite for sustained economic growth. At the June Budget and in the spending review, the Chancellor set out a credible plan to reduce the deficit. According the OBR, the plan is consistent with medium-term growth, achieving the mandate in 2014-15, a year earlier than required. The International Monetary Fund continues to back the Government’s consolidation plans, and to advise against changing course. It considered whether it is time to adjust macro-economic policy, and its conclusion is that the answer is no.
Events in Europe and around the world in the past few weeks have shown how important it is for countries with large deficits, such as the UK, to have a credible plan to deal with their debts. The Government have a credible plan. The British economy is recovering, output is growing and new private sector jobs are being created. We have set out why we have made those changes and explained what is required. We are putting our economy on a path of sustainable growth. I urge hon. Members not to press the new clauses to a Division, and to support the Government’s plans for this country.
