VAT rise starts a hard year for the Coalition

12 April 2012

Today's rise in VAT from 17.5 to 20 per cent marks the start of what is likely to be an uncomfortable year for the Government.

Heralded last year, the actual imposition of this tax rise will be more painful, even for an electorate which seems to date, grudgingly, to have accepted ministers' arguments for such measures. How far they will continue to do so is much less certain, as ministers privately concede.

The VAT rise is only visible incrementally, except on big-ticket items. Nevertheless, tax increases this year are forecast to cost the average middle-class family more than £560 extra — a point being driven home by Labour leader Ed Miliband.

Moreover, the hike comes at a time of rising inflation: the Consumer Price Index already stands at 3.3 per cent. Add in the almost certain effect of retailers upping prices under cover of the VAT rise, and it is likely to add to consumers' sense of their money going less far.

The impact on the recovery is the other cause for concern. Business predicts a drop in sales of £2.2 million in the first three months of this year as a result. Yet retail sales are key to Government hopes for last year's cautious recovery being sustained. Ministers argue that the VAT rise is a vital part of their deficit reduction programme: they hope it will raise £13.5 billion over this parliament.

In addition, this is the year when the cuts will really start to bite. Of course, ministers will hope that whatever the inevitable pain, the public finances will be righted and the economy set fair by the time of the next general election in 2014 or 2015. But even if they are right, they and their Lib-Dem coalition partners face a very bumpy ride before then — starting with next week's Oldham by-election.

Keeping control

The Government's dilemma over what to do about control orders, the controversial system of semi-house arrest for some terror suspects, highlights the challenges posed by the new generation of Islamic terrorists. It also underlines political fissures in the Coalition.

The review of the anti-terror laws, due to be published before Christmas, has been delayed by fraught negotiations between ministers: abolishing control orders was a Lib-Dem manifesto pledge.

Today, however, former foreign secretary Sir Malcolm Rifkind, chairman of the Intelligence and Security Committee, has added his voice to other senior figures warning that the orders, which can involve curfews, tagging and limits on phone and internet use, remain necessary to prevent future attacks.

The problems were all wrangled over by the last government — to little avail. Judges have proved unwilling to deport foreign suspects to their native countries because of the risk of torture.

Yet without a major revision of the use of surveillance evidence in court — which the security services oppose — the state is unlikely to be able to mount successful criminal trials against them, or against British-born suspects (all eight men currently subject to orders are British).

However, as with the Guantánamo detainees, there is little doubt that at least some suspects do pose a potential danger. Ministers must ensure the safety of the public — even if that ends up embarrassing some Lib-Dems.

Tube's crucial test

To add insult to injury on the day when commuters have had to swallow inflation-busting rises in Tube, bus and train fares, there has been serious disruption today on the Jubilee, Piccadilly and Northern lines.

This year is Boris Johnson's last chance ahead of next year's Mayoral election to make a decisive improvement to our transport system. He must not waste it.

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