Tuesday News Review

VAT rise puts jobs at risk

The 2.5% hike in VAT which comes into effect at midnight tonight will cost families almost £400 a year and put up to 250,000 jobs at risk, Labour leader Ed Miliband warned today. He accused both of the parties in the ruling coalition of breaking election promises on tax, reminding voters that Liberal Democrat leader Nick Clegg campaigned against a “Tory VAT bombshell”, while Conservatives promoted a “fuel duty stabiliser” to reduce levies on petrol when prices are high at the pump. The increase to 20% will force up the cost not only of a tank of petrol, but also of regular purchases like a mobile phone call, cup of coffee or DVD, he said. But he was accused of “opportunism” by Chancellor George Osborne, who challenged him to explain what he would cut to make up for the revenue he would lose by scrapping the planned VAT increase. – Independent

The rate of Value Added Tax rose by 2.5 percentage points at midnight, from 17.5 per cent to 20 per cent – an attempt by the Coalition to reduce the deficit. But analysts believe many gyms, mobile phone companies, restaurants and shops will raise their prices by between 5 per cent and 8 per cent, or possibly more. To recoup the escalating cost of petrol, energy, cotton and other key commodities, they are expected to use the tax change to obscure far larger price increases. This could add far more to a family’s annual expenditure than previously expected. Ed Miliband, the Labour leader, said yesterday that the VAT rise would cost the average family almost £400 a year and put 250,000 jobs at risk. Campaigning in the Oldham East and Saddleworth by-election, Mr Miliband cited a Liberal Democrat poster from last year’s general election, that warned a “Tory VAT bombshell” would cost households £7.50 a week. – The Telegraph

The government claims that the alternative to today’s VAT rise is bigger spending cuts. But that isn’t true. Yes, the coalition government needed to set out a credible framework for stabilising the national debt, but its decision to tighten the screws so far and so fast was a political choice. It wouldn’t surprise me if Osborne was planning pre-election tax cuts for 2014. Instead of raising VAT and national insurance this year, the government could introduce taxes on carbon and financial transactions next year. And it should levy a tax on land values. Since all the land in Britain is worth some £5 trillion, an annual levy of 1% could raise £50bn a year – without depressing economic activity, because land is in fixed supply: central London can’t be spirited away to a tax haven. As well as preventing property bubbles (and busts), a land tax would be fair. A mere 160,000 people (mostly hereditary landowners) own more than two-thirds of Britain – and the value of that land increases not through their own striving, but through that of others. – The Guardian

Extra £1.5bn benefits to pay

Rising unemployment will cost the government £1.5bn more than expected in welfare benefits, according to official forecasts that reveal the hidden cost of the coalition’s austerity drive. As big increases in VAT are due to bite from Tuesday, analysis from the Office for Budget Responsibility shows slowing economic growth will make it harder to reduce the deficit by forcing more people to seek state support. The Treasury watchdog calculates the government will have to pay out £700m more in unemployment benefit than previously forecast. Similarly, a higher number claiming jobseeker’s allowance as well as falling into lower wage brackets will see the government needing to pay out another £700m more in housing assistance over the next four years. Though the OBR data, released last month, confirms the government is still making substantial savings from its changes to both benefits, the shadow work and pensions secretary, Douglas Alexander, said the OBR’s fresh assessment suggested it was government strategy that was leaving these higher numbers exposed. – The Guardian

Electoral system “broken” claims IPPR

Last year’s general election result was determined by less than 2% of voters, according to a think tank report which has denounced first-past-the-post voting as a “broken system” for choosing Westminster MPs. The report from the left-of-centre Institute for Public Policy Research comes ahead of the May 5 referendum on replacing first-past-the-post (FPTP) with the alternative vote (AV) system, under which voters rank candidates in order of preference. While supporters of FPTP – including mostConservatives and a large number of LabourMPs – argue it is the best way of producing strong governments, today’s report argues that long-term changes in voting patterns mean the system has become a recipe for hung parliaments and coalitions in future. – PA

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