Wednesday, 26 November 2008

The truth about the VAT story

When I was running David Blunkett's office in Opposition, we received a bit of paper that been designed to pressure No 10 for more money, with the admission that schools were short of money with the phrase "insufficient resources threaten the provision of education in the state school sector". I duly passed it on to the much-missed political editor of the Evening Standard, Charles Reiss, who made it his splash as it happily coincided with a cabinet awayday which was being seen as another relaunch of John Major's beleaguered government.

Needless to say the media diverted its attention to the leak story and the relaunch was suspended. Nobody remembers the leak now and it was of little long term consequence. Afterwards, when in government, one official told me that they were just relieved we hadn't seen the more radical statements in the rest of the paper.

In many ways the 1995 leak was more explosive than today's accidental publication of an earlier Treasury document on the Internet, because it confirmed what everyone in education already knew at the time, but which ministers had been denying. But it was also reasssuring to know that officials were aware of what was happening in the real world.

I was reminded of those events hearing the excitement surrounding today's story showing that ministers considered raising VAT to 18.5% in order to pay for the temporary cut. The controversy will play out but it is worth recognising the reassuring elements, which are stronger than those in the 1995 leak.

All sensible - and some radical - options are considered and should be considered over any policy. The only bombshell would have been if they had not considered the VAT increase option. The issue is not whether such options are considered, but what decision is made in the end and why. In a sense, a rise to 18.5% would have been the most logical way to pay for the VAT cut. But it would also have been the most regressive, as even the poorest have to pay it on many goods and services. The government opted for a more progressive method of repayment, which is to their credit.

But the fact that this was a serious option until the last minute also gives the lie to the notion that ministers have deliberately set out to wreck New Labour principles in order to pacify leftwing backbenchers; the top rate rise and NI increase were simply the least worst options.

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