Osborne slammed over VAT increase

Chancellor George Osborne has been accused of “treating the British people like fools” after defending the rise in VAT from 17.5% to 20%.

Labour leader Ed Miliband made the claim after Mr Osborne insisted the increase was a “tough but necessary step” towards Britain’s economic recovery and said alternatives would hit poorer families harder.

The VAT hike, announced in last year’s Budget, is designed to raise £13 billion a year.

Retailers have warned it could depress consumer spending in the high streets while there are also fears it will fuel inflation and put upward pressure on pay settlements.

The Trades Union Congress (TUC) said the rise would mean poorer people being hit, rather than the banks, and the Federation of Small Businesses (FSB) urged the Government to increase the threshold above which firms had to register for VAT.

Mr Osborne told the BBC Radio 4 Today programme: “I think 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.”

But Mr Miliband responded: “George Osborne should stop treating the British people like fools. He claimed that 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.”

He said Mr Osborne should apologise for “misleading Britain”. Mr Miliband went on: “The truth about this VAT rise is it’s the wrong tax at the wrong time.”

TUC general secretary Brendan Barber said: “Raising VAT, while failing to tackle the tax loopholes exploited by big businesses, means that ordinary people will soon pay a higher rate of tax on purchases and earnings than the banks pay on their profits.”

FSB chairman John Walker said: “A recent FSB survey shows that 70% of businesses are worried about the VAT increase, with almost half of respondents going to have to increase prices as a result and 45% believing it will decrease their turnover – neither of which will help small firms take on more staff.”