Lib Dem Tax Revolt Threatens UK Coalition

by Robert Lee, Tax-News.com, London

28 June 2010

Senior Lib Dem MPs may spearhead a revolt against the coalition government’s decision to increase the rate of value-added tax (VAT) to 20% in the emergency budget announced last week.

Among the MPs who are voicing disquiet over the VAT increase are former party leaders Charles Kennedy and Sir Menzies Campbell. Sir Menzies commented: “Liberal Democrats like me are nervous about the rise in VAT. Why? Because it’s a regressive tax likely to cause most pain to people who earn least”.

Many Lib Dem MPs are angry about the VAT rise, especially as their party leader Nick Clegg launched a poster campaign prior to last month's general election warning of a ‘Tory VAT bombshell’. Bob Russell, an outspoken Lib Dem MP said that he could vote against the emergency budget in the House of Commons. A crisis meeting has also been convened in the House of Commons to allow Lib Dem MPs to state their concerns over the VAT increase and the spending cuts proposed in the emergency budget.

The new Chief Secretary to the Treasury Danny Alexander, himself a Lib Dem, has tried to defend the VAT increase saying that it was the only alternative to even deeper spending cuts. The credibility of the Lib Dems forming part of the coalition government is now seriously being called to question, however. Business Secretary Vince Cable admitted that he changed his mind over levying an increase in VAT, citing advice he had been given by officials of the Bank of England warning him of the risks to the economy if the tax was not increased.

The disquiet among rank and file Lib Dems and the dissent being voiced by senior Lib Dem MPs may bring the first test of the newly forged coalition government, with the inherent risk that the emergency budget may not receive the necessary mandate in the House of Commons to allow the Chancellor to implement his changes.

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