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VAT rise tough but necessary, says Osborne Labour and Tories clash over VAT increase
(about 1 hour later)
The increase in the top rate of VAT is a "tough but necessary" step towards restoring the UK's economy, Chancellor George Osborne has said. Chancellor George Osborne has defended the VAT increase from 17.5% to 20%, saying it could boost employment and was better than raising income tax.
The rise from 17.5% to 20%, which came in on Tuesday, is expected to raise an extra £13bn in revenue. But Labour leader Ed Miliband urged the government to apologise for suggesting that the rate rise was a "progressive" policy.
Mr Osborne told the BBC this was more "progressive" than increasing income tax or National Insurance. The VAT rise, which came into effect on Tuesday, will bring in an extra £13bn in revenue, the Treasury says.
But Labour leader Ed Miliband said this was "misleading" and called on Mr Osborne to apologise to voters. Food, children's clothing, newspapers and magazines are not subject to VAT.
The VAT rise is the second in a year, after Labour chancellor Alistair Darling restored the 17.5% rate last January, having temporarily reduced it to 15% for 13 months to stimulate the economy during the recession. It is the second increase in a year, after Labour chancellor Alistair Darling restored the 17.5% rate last January, having temporarily reduced it to 15% for 13 months to stimulate the economy.
'Broken promise' Research by the Centre for Retail Research and online shopping group Kelkoo has suggested that retail sales will fall by about £2.2bn in the first three months of the year as a result of the rise in VAT.
Mr Osborne said: "I didn't come into politics and become chancellor of the exchequer wanting to increase taxes. I'm actually someone who believes we want to try and lower taxes in this country. The British Retail Consortium has also warned that the rise, announced in the June Budget, may have squeezed the traditional January sales period into a concentrated burst around the New Year.
"But when you've got a very large budget deficit and you've in the middle of a European sovereign debt crisis - and you've decided that at least part of dealing with the deficit has to come from tax rises - then I think VAT presents itself as the choice. But Mr Osborne told BBC Radio 4's Today programme: "I didn't come into politics and become chancellor of the exchequer wanting to increase taxes. I'm actually someone who believes we want to try and lower taxes in this country.
"And interestingly enough of course, my predecessor - Alistair Darling - came to exactly the same conclusion, wanted to increase VAT in office and made it very clear after the election that he would have increased VAT had he remained the chancellor." "But when you've got a very large budget deficit and you've in the middle of a European sovereign debt crisis - and you've decided that at least part of dealing with the deficit has to come from tax rises - then I think VAT presents itself as the choice."
He added: "If you look at the population and how much they spend, then VAT is progressive."He added: "If you look at the population and how much they spend, then VAT is progressive."
Mr Osborne also said the VAT rise was a "tough but necessary step towards Britain's economic recovery", and that 20% was "a reasonable rate to set, given the very difficult situation we find ourselves in".Mr Osborne also said the VAT rise was a "tough but necessary step towards Britain's economic recovery", and that 20% was "a reasonable rate to set, given the very difficult situation we find ourselves in".
He added that he regarded the increase as "permanent" and it would "increase employment" because it would increase confidence that the government was tackling the budget deficit.He added that he regarded the increase as "permanent" and it would "increase employment" because it would increase confidence that the government was tackling the budget deficit.
For Labour, shadow chancellor Alan Johnson said: "This is a broken promise - this was the big issue of the general election campaign. But, in an interview with the BBC News Channel's chief political correspondent, Laura Kuenssberg, Mr Miliband said: "David Cameron admitted before the election that VAT rises are unfair.
"It does nothing for jobs and growth - this year has to be all about continuing the growth momentum. It hits the poorest hardest. For those three reasons this is the wrong tax at the wrong time." "Everyone knows that poor and middle-income households will be hit hardest. He should come out and apologise for misleading the British people."
Shadow chancellor Alan Johnson said: "This is a broken promise - this was the big issue of the general election campaign."
The change affects any VAT-registered business which sells or purchases goods or services that are subject to the standard rate.The change affects any VAT-registered business which sells or purchases goods or services that are subject to the standard rate.
Food, children's clothing, newspapers and magazines are not subject to VAT.