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Value Added Tax

Let me say from the outset that I support fiscal stimulus, as it has been clear for some time that the problems of recession and deflation were far more likely than problems stemming from inflation. That is quite clear now, and my view is that monetary policy alone will not be sufficient to deal with the situation. It remains to be seen whether this particular package is the right one and whether it will be sufficient to bring about a stimulus effect, but it is what we have at the moment, so we will need to go with it—at least for the time being. Although I support the present fiscal stimulus and welcome much of what the Government announced in the pre-Budget report, I find it galling—indeed, extremely galling—that it is portrayed by the Government as their somehow saving the world or leading the leaders of other nations and states around the world. I say that not least because the PBR post-dated the US fiscal stimulus package of $150 billion in February, the Spanish package of $18 billion in April, the October announcement by President Sarkozy of 100,000 subsidised work contracts, the €50 billion package announced in Germany and, indeed, the Japanese package of £235 billion, if my memory serves me correctly, of which £20 billion—almost as much as the total UK package—was directed at householders with mortgages. Let us have no more of this Government pretending that they have been decisive when they have not, or that they are leading, which they most certainly are not. If the package had been announced in a full Budget, we would have had four days of debate and a Finance Bill subject to detailed scrutiny in Committee. Alternatives for how to spend 1 per cent. of gross domestic product—about £12.5 billion—would have been varied and very clearly put. I am sure that they would have ranged from cuts in corporation tax to allow businesses that really create jobs to keep more of the money they earn in order to sustain themselves through recession to more direct public investment and everything in between. I am sure that each and every one of those alternatives would have had some merit in its own right and would have been worthy of consideration. We are, however, where we are. We are talking about 1 per cent. of GDP; it is £12.5 billion and it is the largest part of the reflationary package. The bulk of the rest was £5 billion of re-profiled money for direct public investment; it was not new money and it will, of course, lead to a funding shortfall in public expenditure in two or three years' time. My criticism of the VAT proposal was that the Government were not straight with people about it. Had it been played solely as a business measure—if businesses could have kept the 2.5 per cent. extra to sustain them through the recession in order to maintain, protect and preserve as many jobs as possible—there would have been some merit and honesty in it. The idea of selling it on the basis that 2.5 per cent. was coming off the price of goods and going into consumers' pockets was simply wrong, not least because of the heavy discounting of 20, 30 or 40 per cent. already taking place. When I bought a present for my daughter in Dundee on Sunday, there was a 70 per cent. discount on it already, so the VAT cut is simply swamped. As I said, had this been played as providing 2.5 per cent. extra to businesses, instead of the pretence that it was going to consumers, we would have been happier with it. Let me now deal directly with the prayer, and with comments made by the Liberal Democrats and others. In some cases, the cost to businesses that have changed their rate has been enormous. I am told that the average cost to the smallest businesses is about £2,500. I fear that, if the prayer were successful, they would be required to pay a further £2,500, as VAT levels would have changed twice in the space of a few months. Small businesses would be burdened with a bill not for £2,500 but for £5,000—and, in the case cited by the hon. Member for Daventry (Mr. Boswell), a bill not for £6,000 but for £12,000. That would be horrendous.