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MPs to vote on scrapping VAT cut MPs to vote on scrapping VAT cut
(about 5 hours later)
MPs will vote later on a Lib Dem motion calling for the cut in VAT rates earlier this month to be scrapped. MPs are to vote on a Lib Dem motion calling for the cut in VAT rates earlier this month to be scrapped.
The Conservatives are to back the motion, having described the cut as "pointless", while ex-Labour minister Frank Field has hinted he will rebel. Lib Dem Treasury spokesman Vince Cable told MPs the temporary VAT cut from 17.5% to 15% was "seriously defective".
The temporary cut in VAT from 17.5% to 15%, announced in the pre-Budget report, came into effect on 1 December. The Conservatives are to back the motion, having described the cut as "pointless", while Labour ex-minister Frank Field told MPs he would rebel.
It is designed to boost consumer spending over the next year but many have queried its likely effectiveness. The VAT cut aims to boost consumer spending over the next year but many have queried its likely effectiveness.
Contentious measureContentious measure
Despite the prospect of some Labour MPs rebelling, the government is confident of winning the vote.Despite the prospect of some Labour MPs rebelling, the government is confident of winning the vote.
But should it lose, ministers would be under pressure to respond immediately and confirm whether the cut would be reversed. But should it lose, ministers would be under pressure to respond immediately and confirm whether the cut, which came into effect on 1 December, would be reversed.
I believe cuts in VAT is likely spitting in the face of an economic hurricane Frank FieldLabour backbencher
Opening the debate, Mr Cable said he agreed with the concept of a fiscal stimulus but said the VAT cut "was a bad one".
In a reference to Chancellor Alistair Darling's explanation in the pre-Budget report about why the VAT was the best method, Mr Cable told MPs: "Our view is that this isn't the best, isn't the fairest, it won't help everyone and it certainly won't give back £12.5bn back to consumers."
He questioned how much a 2.5% drop would be likely to influence the behaviour of a "rational consumer" and said the effect was "invisible" at a time when shops were already discounting goods "aggressively".
Philip Hammond, for the Conservatives told MPs the VAT cut was "the prime minister all over, unaffordable and ineffective".
He said Mr Brown was committed to a "reckless exercise that will increase debt through yet more borrowing" to fund a temporary VAT cut which nobody but Mr Brown thought would be effective.
Job threat
Mr Field, who led a backbench rebellion against the abolition of the 10 pence tax rate earlier this year, has called on High Street banks bailed out by the government to be given the money to lend to businesses.
"I believe cuts in VAT is likely spitting in the face of an economic hurricane I don't believe it will have any effect whatsoever," he told MPs.
He predicted, when MPs returned to Westminster after the Christmas break, many businesses would be on the brink of closure, threatening more jobs.
"I believe unless we radically change the credit life lines to many firms, there will be a considerable number of our constituents who will not have firms to go to after Christmas."
The VAT reduction will remain in place until the end of next year.The VAT reduction will remain in place until the end of next year.
Ministers hope the measure will encourage people to spend money and help retailers under pressure as the economic downturn bites.Ministers hope the measure will encourage people to spend money and help retailers under pressure as the economic downturn bites.
However, they insist it is just one of a number of measures announced in recent months to help businesses and families through the downturn and to increase the chances of a quicker recovery.However, they insist it is just one of a number of measures announced in recent months to help businesses and families through the downturn and to increase the chances of a quicker recovery.
But opposition parties believe the cut is costly and will have little impact on consumer behaviour given the large discounts that most leading retailers are already offering to drum up trade.But opposition parties believe the cut is costly and will have little impact on consumer behaviour given the large discounts that most leading retailers are already offering to drum up trade.
The Conservatives have said the government's economic recovery plan has failed and urged ministers to focus on maintaining bank lending and making sure companies can get hold of credit.The Conservatives have said the government's economic recovery plan has failed and urged ministers to focus on maintaining bank lending and making sure companies can get hold of credit.
The Lib Dems have called, instead, for substantial cuts in income tax targeted at people on low and middle incomes.The Lib Dems have called, instead, for substantial cuts in income tax targeted at people on low and middle incomes.
Mr Field, who led a backbench rebellion against the abolition of the 10 pence tax rate earlier this year, has said he would like to see the money "spent in other ways".
He has called on High Street banks bailed out by the government to be given the money to lend to businesses.
While the retail industry has welcomed efforts to boost demand, many small firms were angry about the administrative cost of having to change their prices in the run-up to Christmas.While the retail industry has welcomed efforts to boost demand, many small firms were angry about the administrative cost of having to change their prices in the run-up to Christmas.
The VAT row intensified last week following criticism of Gordon Brown's economic policies by two German politicians.The VAT row intensified last week following criticism of Gordon Brown's economic policies by two German politicians.