Page last updated at 20:16 GMT, Tuesday, 25 November 2008

MPs get emergency budget debate

George Osborne responds to Alistair Darling's statement on Monday
MPs will debate the pre-Budget proposals on Wednesday

The shadow chancellor has secured the emergency House of Commons debate he had demanded into Chancellor Alistair Darling's "crisis" pre-Budget report.

Speaker Michael Martin said it was an important enough issue to prompt a three-hour debate on Wednesday.

It comes as a draft Treasury document shows the government considered a VAT rise to 18.5% for 2011/12.

The Treasury says that was rejected but Tory leader David Cameron said it was evidence of a "secret tax bombshell".

Shadow chancellor George Osborne had said it was a "disgrace" there had been no debate planned into Mr Darling's "reckless gamble".

'Public scepticism'

Earlier Mr Darling said he would be happy for there to be a debate but said the Tories had only made the request on Tuesday.

Mr Osborne said there was an urgent need for a debate on key tax changes, such as the plan to reduce the rate of VAT from 17.5% to 15% for 13 months, to be introduced next week.

There are running away from the argument because they are losing the argument
George Osborne

He said there was "widespread scepticism" among the public and retailers about the proposal's "merits".

"There are running away from the argument because they are losing the argument," he told MPs.

Unlike the Budget, the pre-Budget report (PBR) is not usually followed by a debate but the Tories argue this one was a Budget in all but name.

The debate will start an hour after the weekly Prime Minister's Questions, likely to be dominated by economic arguments.

'Tax bombshell'

Among them will be the proposal to increase VAT to 18.5% from 2011 - which was apparently mistakenly included in documents published alongside the PBR online.

Mr Cameron said the government had promised to show how they would pay for its plans but the document showed they were planning a VAT increase.

He told the BBC: "That's why the budget doesn't add up, that's why there's such a big black hole, that's why everyone is saying this budget isn't convincing and it isn't. There's a secret tax bombshell coming down the road at every family in the country."

VAT cut by 2.5 percentage points
45% tax rate on earnings over 150,000 from 2011
All National Insurance to go up by 0.5% from 2011
Economy to shrink by up to 1.25% next year
Borrowing to hit record 118bn
Public spending growth cut to 1.2%
Phased increase in vehicle excise duty
60 Christmas gift for pensioners

The Treasury says the proposal "was considered and rejected" and the chancellor always considered "a range of policy options, most of which are rejected".

A spokesman said the final decisions were clearly set out in Monday's PBR.

Earlier Mr Osborne has said the country was facing "huge risks" and a "trillion-pound" public debt from measures outlined in the PBR.

Lib Dem leader Nick Clegg has urged ministers to get "really tough" with banks to force them to increase business and personal lending or to "bypass" them by injecting money into the economy through other routes such as local authorities or the Post Office.

It comes as Bank of England Governor Mervyn King told MPs it was essential banks started lending again at normal rates and "in the last resort", the government may need to "intervene directly to ensure the flow of lending continues".

Lion's share

In his report on Monday, the chancellor unveiled plans for record borrowing and the VAT cut.

To pay for that in future years Mr Darling said that from 2011 National Insurance would rise by 0.5% and there would be a new 45% tax rate for earnings above 150,000. There would also be a sharp slowdown in public spending growth.

Darling warns banks on lending

Mr Darling is gambling that an increase in borrowing will diminish the downturn.

He denied that the New Labour project - which ruled out raising income tax rates - was dead.

Mr Darling told the BBC's political editor Nick Robinson that people earning more than 150,000 would shoulder the "lion's share" of the tax increases from 2011 onwards.

I believe the best help would be to cut public transport costs and fuel costs - then everyone benefits
Roy, Croydon

He also defended the decision to sharply raise borrowing levels to help the economy through the recession saying it would make the "pain shorter and make sure we get through this quicker than would otherwise be the case".

Liberal Democrat Treasury spokesman Vince Cable said the pre-Budget report measures did not go far enough and that he doubted that the VAT cut - which will cost 12.5bn - would be sufficient to give the economy a boost.

He said the government "had to do something", but added: "Our criticism is about the way they did it.

"We think the tax cuts should have been concentrated on low-paid workers, people on low, middle incomes, cutting their income tax on a permanent basis and financing it from the top end of the scale."

The Lib Dems have tabled a motion calling for the VAT cut to be dropped although there is little chance of it going to a vote.

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