Darling Still Plans To Put VAT Back Up On 1st Jan

(Telegraph) – A CABINET RIFT has opened up over whether VAT should rise at the end of the year, after Alistair Darling, the Chancellor, insisted it had to go up.

His comments come just two days after Harriet Harman said the planned rise from 15% to 17.5% on January 1 was ‘under review.’

Ms Harman, speaking in the wake of the Daily Telegraph‘s campaign to postpone the increase, said the Government would be flexible about VAT — a move that was welcomed by business groups.

Leading figures in the retail and hospitality industry, including Sir Philip Green and Sir Stuart Rose, have argued it will be an ‘administrative nightmare’ to implement the change not only on a Bank Holiday; but also at the busiest time of the year for restaurants, hotels and shops.

However, Mr Darling publicly ‘slapped her down,’ according to a Treasury source, after he made clear the reverse in the temporary cut was still set for the New Year.

Talking on the BBC’s Andrew Marr Show, he said it would ‘definitely’ return to its original higher level of 17.5% in January.

‘The reason that I cut VAT was to bring forward spending during this year as part of the process of helping our economy get through it.

‘But, you know, when you consider that it costs almost about a billion pounds a month, I was quite clear at the budget and clear when I announced this last November that the VAT rate would return to the 17.5% at the end of this year. Now that remains the case,’ the Chancellor said.

It is understood that he was upset that Ms Harman, deputising for the Prime Minister, who is on holiday, spoke on tax matters.

Business leaders and economists argue the Treasury can afford to postpone the planned increase by a month because VAT revenue has fallen by £800 million less than expected — the equivalent to a month’s tax take.

Michael Ward, the managing director of Harrods, said only a ‘congenital idiot’ would put up VAT on New Year’s day, just as retailers were launching their January sales.

… (Telegraph, 28/07/2009) – VAT: David Blanchflower says ‘madness’ to raise tax in January

… (31/07/2009) – Anger Over Rising Banking Rates

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