Finance Bill

I follow my hon. Friend quite a lot of the way, but we have to be careful about suggesting that the Secretary of State knew something was untrue. However, he appeared to say in that interview that he had misled the electorate and that it was perfectly okay for the Lib Dems to do so because after the election a new world would be entered into. As has been mentioned several times, the Library confirms how regressive—that is, unfair—VAT is. How can the Secretary of State argue in this place and elsewhere that he decided to vote for the Budget as a package because it introduced fairness when the House of Commons Library shows that all serious economists accept that VAT is a regressive tax? It falls twice as heavily on the poorest deciles as on the richest. I wanted to speak briefly about the situation for students, but given the time I simply note the fact that students and others on fixed incomes, such as pensioners, will suffer greatly as a result of the VAT increases they will face. I have three further points. First, every increase in VAT produces an increase in inflation. If there is to be a proper impact assessment, we must look at the effect of VAT on inflation. Most economists agree that inflation will rise by about 2% as a result of the VAT rise. If the Government increase inflation by 2%, even if there was no other inflation in the economy, they will be in breach of Monetary Policy Committee guidelines. However, we know that there is already inflation in the economy. An increase in VAT, with the corollary that inflation will rise well above 2 %, will lead to interest rate rises, which will begin to squeeze away any recovery in the economy that we all hope is coming. The British Retail Consortium said that there will be job losses, company bankruptcies and unemployment as a direct result of the inflation caused by the VAT rise. Moreover, the fact that demand of up to £13.5 billion will be taken out of the economy as a consequence of the VAT rises will produce further unemployment problems. If the level of aggregate demand is reduced there will inevitably be unemployment. Most economists predict that between 180,000 and 220,000 jobs will probably be lost as a consequence of the VAT rise and the reduction of demand in the economy. Finally, this VAT rise is wholly unnecessary. It does not contribute in any way to the reduction of the deficit. As we know, the VAT hike will take £13.45 billion by its final year, 2014-15. If the measure was being used to take money out of the economy to help the deficit, one could understand it, but the same Budget hands out money in tax cuts as follows: there will be reductions in corporation tax and in small business profits tax, an increase in the employers' national insurance contribution threshold, increases in personal allowances for income tax, adjustments for basic rate and upper earnings limits and a council tax freeze. All those tax give-aways add up to £12.37 billion—almost the same amount as will be raised through the VAT rise. The truth is that the measure is not in any way about reducing the deficit; it is about tax give-aways to the Tories' friends—the richer people in our society. The VAT rise is exposed for what it is: a regressive tax, taking money from the whole economy to bolster the Tories' friends in business and the 22 millionaires who sit around the Cabinet table. No doubt many people on the wealthier side of the divide in this country are rubbing their hands in glee.