Page last updated at 10:36 GMT, Wednesday, 29 June 2011 11:36 UK

Labour calls for temporary VAT cut

Labour has called on Chancellor George Osborne to introduce a temporary cut in VAT, describing the 20% rate as "unfair" and "damaging" to the economy.

As MPs continued their consideration of the Finance Bill at report stage on 28 June 2011 and into the early hours of the following morning, shadow exchequer secretary David Hanson told MPs: "Every member on the Labour benches knows VAT is a regressive tax that hits the poorest hardest."

But Exchequer Secretary David Gauke pointed out former Chancellor Alistair Darling, according to former Business Secretary Lord Mandelson's memoirs, favoured raising VAT - and challenged him to explain why "so few" Labour MPs voted against an increase in VAT last year.

Mr Hanson claimed: "The rise in VAT is costing ordinary working people... £450 extra this year and low-paid people will bear the brunt of that."

He added: "The way in which the government are proposing to tackle the deficit is too far, too fast, too deep, it is hurting poorest people hardest, it is done in an unfair way and it is going to damage the long-term business interests of the UK as a whole."

However, a Labour amendment aiming to cut VAT to 17.5% was not selected for debate by Commons Speaker John Bercow.

Mr Gauke told MPs: "It was only on June 16 that with much fanfare the shadow chancellor [Ed Balls] announced the opposition's flagship policy for a cut in VAT, the first paragraph on the blank sheet that is Labour's policy.

"And yet with an opportunity to legislate for this very policy today, the opposition has failed to get round to tabling their new clause until the day before - too late for selection today.

"We could speculate as to why that is the case - perhaps the party opposite has reconsidered its policy."

MPs debated a similar amendment calling for a cut in VAT tabled by Plaid Cymru's Jonathan Edwards.

Asked why he thought Labour's amendment had not been selected, Mr Edwards said: "I can only assume that my staff are more effective than his [Mr Hanson's]."

But Plaid Cymru's bid to reduce VAT was defeated by 293 votes to 10, a government majority of 283.

Watch parts one and two of the debate.

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