War of words as chancellor claims VAT increase will hit rich hardest

BRITISH Chancellor George Osborne has been accused of treating people “like fools” by claiming yesterday’s VAT hike will hit the rich hardest.

Labour levelled the charge after Mr Osborne said the increase from 17.5% to 20% was tough but necessary and more progressive than alternatives. He also signalled that there were no plans to reverse the rise with income tax likely to be targeted for any possible reductions in future.

The VAT change, announced in last year’s budget, is designed to raise £13 billion (€15.3bn) a year to help tackle the deficit. But there are also fears it will depress consumer spending as fuel and other costs rise, as well as driving up inflation further.

Critics say the poor will suffer more because a larger proportion of their income goes on essentials.

Mr Osborne rejected the concerns, telling BBC Radio 4’s Today programme: “It is a reasonable rate to set, given the very difficult situation we find ourselves in. The VAT rise is a tough but necessary step towards Britain’s economic recovery.

“If you don’t want to raise VAT, you have got to do something else.” The chancellor added: “Income tax and national insurance (increases) would have a more damaging impact on poorer people in our society.”

But Labour leader Ed Miliband used a round of interviews to dismiss the coalition’s argument, insisting Labour’s plans for increases in national insurance contributions were fairer. “George Osborne should stop treating the British people like fools,” he said.

“He claimed this VAT rise was fair but David Cameron admitted before the election that VAT rises were unfair. Everybody knows it’s poor and middle-income families that will be hit hardest.”

Mr Miliband said Mr Osborne should apologise for “misleading Britain”.

“The truth about this VAT rise is it’s the wrong tax at the wrong time,” he added.

Yesterday’s rise is the second for VAT in a year. Labour chancellor Alistair Darling restored the 17.5% rate last January, having temporarily reduced it to 15% for 13 months to stimulate the economy during the recession.

TUC general secretary Brendan Barber said ordinary people were paying the price for the mistakes of banks, who would not be hit by the levy.