The Tories and Labour have become embroiled in a row over VAT after Chancellor Jeremy Hunt accused Keir Starmer’s party of “flip-flopping” over tax policy.
Both parties – as well as the Liberal Democrats – have all ruled out raising value added tax (VAT) if they win the general election on July 4.
It comes as Prime Minister Rishi Sunak told the Times he was “confident that we will get the tax burden down”, and suggested to voters: “We are the party who has committed to bringing down inflation, which is the necessary condition for bringing down interest rates.”
But the two main parties have been trading blows over the sales tax, with Hunt writing in the Telegraph last night that Starmer and shadow Chancellor Rachel Reeves have “repeatedly refused to give the same guarantee about VAT”.
Hunt claimed in the piece that if Labour upped VAT to 21 per cent it could generate “about £9bn a year”, which he said would almost exactly fill the black hole in the party’s plans for spending, according to recent Treasury analysis.
“Coincidence? I hardly think so. It’s clear Keir Starmer and Rachel Reeves have a plan to increase VAT, and they don’t want you to know about it until after polling day,” he argued.
And Hunt vowed that a future Tory government would not increase any rate of income tax, national insurance or the main rate of VAT for the duration of the next Parliament, and urged Starmer to “make the same explicit commitment in front of a camera today”.
However, Reeves quickly hit back in a statement rubbishing Hunt’s claims as “absolute nonsense”. She insisted: “Labour will not be increasing income tax, national insurance or VAT. I want taxes on working people to be lower, not higher.”
Hunt then suggested Labour had “buckled today under pressure”, suggesting “as with the flip-flopping on £28bn, it demonstrates that they don’t have a plan for the economy”.
He reiterated his claim Labour would mean higher taxes of “£2,094 for the average family”.
Speaking on BBC Breakfast this morning, the Chancellor added: “What you have is a party that when it comes to the basic questions, cannot make up its mind.”
The Conservatives have also released their first election poster, which bears a giant red piggy bank bearing the words: “If you think Labour will win, start saving…”
Labour, for its part, claims the Conservatives have a spending black hole in their plans worth £71bn, where the Tories have allegedly failed to say where the money will come from.
Tory pledges would, according to Labour analysis, result in borrowing to plug the gap, which could in turn raise interest rates, resulting in a monthly mortgage payment increase of £350.
In an impromptu press conference on Wednesday, Labour’s Darren Jones said the Tories’ economic plans would require a £70bn borrowing increase, which would risk interest rates rising by 2.5 percentage points.
Labour said it had costed Tory plans in a document, styled like an official Budget, including Sunak’s pledges to bring back national service and a tax break for pensioners, which they branded a “kamikaze manifesto”.
Yet central to Labour’s calculations was its assumption that the Conservatives would immediately abolish national insurance, a payroll tax, if it stayed in power.
But the Tories have only said they’d pursue that goal when it’s affordable to do so, and haven’t put a specific time-frame on it.
Both parties are making their pledges against a challenging backdrop. The Institute for Fiscal Studies (IFS) said the next government will face the toughest fiscal inheritance in 70 years.