Labour and Conservatives rule out VAT hikes amid row over tax plans

Jeremy Hunt and Rachel Reeves have ruled out raising VAT after the general election amid a furious row about each other’s tax plans.

The chancellor accused Labour of secretly planning to raise VAT, currently charged at 20 per cent on most goods and services, by 1p to plug a £9bn hole in its spending plans.

Mr Hunt said the increase would “hammer families’ finances and push inflation back up, just when we have got it down to normal”.

Rachel Reeves and Jeremy Hunt have clashed over Labour’s tax plans (PA)
Rachel Reeves and Jeremy Hunt have clashed over Labour’s tax plans (PA)

He told The Daily Telegraph: “That’s why I can commit today that, not only will a future Conservative government not increase any rate of income tax or National Insurance, but we won’t increase the main rate of VAT for the duration of the next Parliament. Keir Starmer should make the same explicit commitment in front of a camera today.”

But Ms Reeves hit back immediately, describing Mr Hunt’s claim as “absolute nonsense”.

The shadow chancellor added: “Labour will not be increasing income tax, national insurance or VAT. I want taxes on working people to be lower not higher. That is why we opposed the increases to national insurance when Rishi Sunak put those forward as chancellor.”

But Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said that, by ruling out tax rises, the parties are leaving themselves “with a series of options which are often not very good”.

The IFS has said Labour and the Conservatives are engaged in a “conspiracy of silence” about post-election spending, with around £20bn of cuts to public services pencilled in after the last budget.

Jeremy Hunt said Labour was planning a 1p VAT hike (PA Wire)
Jeremy Hunt said Labour was planning a 1p VAT hike (PA Wire)

And he said large tax hikes are already scheduled due to the freeze in thresholds introduced by Rishi Sunak as chancellor in 2022.

Mr Johnson added: “We are left at the moment with a set of numbers which imply cuts in public service spending over the next several years.

“And since Rachel Reeves has signed up to precisely the same fiscal target that Jeremy Hunt has got, then come the first budget in the autumn… in order to meet her own fiscal rules she will either have to find some real hard spending cuts or some way of raising taxes.”

Both sides also traded barbs about each other’s supposedly unfunded spending plans, with Labour pointing to a £71bn black hole in Conservative general election plans and the Tories pointing to a £38.5bn gap in Labour’s promises.

Mr Hunt said Labour’s plans would cost working families £2,094 each over the course of the next parliament, adding it is “clear they have a plan to increase VAT and don’t want you to know about it”.

Rachel Reeves said Jeremy Hunt’s claim was nonsense (PA Archive)
Rachel Reeves said Jeremy Hunt’s claim was nonsense (PA Archive)

A Conservative spokesman responded to Labour ruling out a VAT hike by claiming it was “a major policy u-turn”. Labour had previously refused to rule such an increase out, but did so on Wednesday night.

“Keir Starmer, Rachel Reeves and Darren Jones have repeatedly refused to rule out raising VAT throughout this campaign and have now only caved in due to a Conservative press release,” a spokesman said.

Ms Reeves said: “Jeremy Hunt needs to explain how he is going to fund his £71 billion unfunded spending plans that risk putting up interest rates and people’s mortgages.”

The row means both parties have now ruled out increases in income tax, national insurance and VAT in the next parliament.