Page last updated at 10:46 GMT, Saturday, 3 January 2009

Clegg joins attack on VAT 'waste'

Nick Clegg
Nick Clegg said the temporary VAT cut had made little difference

Liberal Democrat leader Nick Clegg has added his voice to concerns that the government's temporary 2.5% VAT reduction has been a "waste of money".

The party would have spent the 12.5bn cost of the measure on creating jobs through investments to make schools, hospitals and homes greener, he said.

Tory leader David Cameron has branded the VAT cut an "expensive failure" which did not encourage shoppers.

The government insists it is offering help to families.

Speaking on BBC Radio 4's Today programme, Mr Clegg restated the Lib Dems plan to build a "fairer" tax system through income tax cuts for low and middle-income earners.

"We would not waste 12.5bn on the VAT cut which the Prime Minister has delivered, which we don't think makes much difference," he said.

"We would use all of that money for a green investment programme, insulating every school and every hospital in this country, and installing smart meters in every home.

"That kind of radical action not only creates jobs but it's good for the kind of green economy we need in the future."

'Radical action'

On Friday, Mr Cameron cited figures from the latest Retail Insight Report, which suggested retail footfall was down 3.1% in December from a year earlier.

"This government, that lectured us about prudence, has spent 12.5bn of our money... and wasted it," he told the BBC.

But the government has defended the decision to reduce VAT from 17.5% to 15% until the end of 2009.

It says the cut was the fairest way to get money into the economy because low-income households spend a larger share of their income on VAT than richer households.

Prime Minister Gordon Brown also argues that he acted to recapitalise the banks, bring forward public spending and increase child tax credit and payments to pensioners.

There has been some criticism of the VAT change from two German politicians and the chief economist at the International Monetary Fund.

The Lib Dems tried to get it overturned in a Commons debate in December, when Treasury spokesman Vince Cable said it was "seriously defective" as a way of getting money into the economy.

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