Finance Bill

Thank you, Mr Hancock. Of course, we are not alone in reaching the conclusion that the right step is to raise VAT. With exquisite timing, we saw today the serialisation of Lord Mandelson's memoirs, in which he noted that the previous Chancellor had reached the conclusion that raising VAT was the right thing to do. Apparently, he told Lord Mandelson that he was""minded to…raise it over time, to 18 or even 19 per cent, rather than push up national insurance charges."" Lord Mandelson tells us that he was "impressed" by this. He says:""These were exactly the sort of hard choices that would enable us to regain the initiative."" Well, they did not take the hard choices and they did not regain the initiative—but we will. The Budget has already had an impact on the credibility of British economic plans. As the director of the CBI has said,""This Budget is the UK's first important step on the long journey back to economic health."" The Fitch rating agency said:""The path of deficit reduction and public debt projections set out in"" the""Budget statement are materially stronger than those set out in the March 2010 Budget."" I am afraid that I cannot accept amendments 13 and 14, tabled by the hon. Member for Dundee East (Stewart Hosie), which would stop the VAT increase from happening. I have explained that we have no option other than to take this action, and I therefore ask the hon. Gentleman to withdraw them. Similarly, amendment 22, tabled by the hon. Member for Nottingham East (Chris Leslie), and amendments 54 and 55, tabled by my hon. Friend the Member for St Ives, would undermine the basic rationale for the increase. They would not allow us to reduce the deficit as quickly as we would like. I agree with the observation made by my hon. Friend the Member for St Ives that one would have expected the shadow Chancellor to support amendment 54. I have a particular concern about amendments 22 and 55. One argument made for the temporary VAT cut by the previous Government was that it would shift expenditure into the relevant year, 2009, when the VAT rate was somewhat lower, and therefore accelerate the recovery. If we did the reverse of that and had a sunset clause, essentially setting out plans to increase VAT but with a promise that we would then reduce it, it would have the reverse effect. It would defer expenditure, which would damage the recovery. I note the point made by the hon. Member for Foyle (Mark Durkan) about the Government's views on sunset clauses. The tax policy document that we produced is very good and has been well received, but the arguments for a sunset clause in the case of a rate change are not very persuasive, particularly given the economic effects that it would have.