Nick Clegg reveals Tories' £13bn VAT bombshell

Liberal Democrat Leader Nick Clegg has revealed the £13.4bn VAT bombshell at the heart of the Tories' tax plans.

Analysis of the Conservatives' proposed tax cuts or reversals shows that they will cost over £13.5bn a year in 2011-12 prices - yet just £100m has been specifically identified to fund them.

This leaves a £13.4bn black hole, equivalent to a 3% rise in the standard rate of VAT. This would mean an extra tax of £389 on the average household.

The Liberal Democrats have fully-costed plans to raise the starting threshold for income tax to £10,000 - this would put £700 back in the pockets of the vast majority of people, and lift around 4m of Britain's lowest earners out of paying tax altogether.

It would be funded by ensuring the very well-off pay their fair share, through measures including:

o taxing capital gains as income

o a mansion tax on properties worth over £2m

o giving tax relief on pensions only at the basic rate

o tackling tax avoidance

Commenting, Nick Clegg said:

"Liberal Democrats have costed, in full, our proposals for tax cuts. We can tell you, penny for penny, pound for pound, who pays for them.

"We will not have to raise VAT to deliver our promises. The Conservatives will. Let me repeat that: Our plans do not require a rise in VAT. The Tory plans do.

"Their tax promises on marriage and jobs may sound appealing. But they come with a secret VAT bombshell close behind.

"So if you're on an ordinary income, you have a choice. If you want your taxes to rise: vote Labour or Conservative. If you want your taxes to fall: choose the Liberal Democrats."

ENDS

Notes to editors

Nick Clegg's speech in full is below:

Tax is already a big dividing line in this election.

But only one party is promising tax cuts for the vast majority of people: the Liberal Democrats.

We will make sure the first £10,000 everybody earns is tax free.

To put £700 back in the pockets of millions of people.

Paid for by closing loopholes that unfairly benefit those at the top.

A new mansion tax.

And increased aviation duties.

The positions of the parties are clear.

If you're on an ordinary income:

Under Labour, your taxes will go up.

Under the Conservatives, I predict today, your taxes will also go up.

Though they'll go down if you're a millionaire.

Only under the Liberal Democrats will your taxes be cut.

Every Scottish person knows from the Poll Tax that you cannot trust the Conservatives on tax.

It was the Poll Tax that drove the Conservatives out of Scottish politics.

It is tax that will make sure they never return.

Your taxes will go up under the Conservatives, and here's why.

The Conservatives have made a series of tax promises in the last few years.

Tax breaks for millionaires with a £2m exemption from inheritance tax.

Tax breaks for married couples.

A freeze in Council Tax.

Reducing the impact of Labour's proposed rises in National Insurance.

And another National Insurance tax break for small businesses.

To pay for all these tax promises would cost £13.5bn.

And the Conservatives have identified a paltry £100m of alternate tax revenue to pay for it.

Together with a series of vague and unconvincing statements about increased efficiency which David Cameron himself says are a trick.

It is time for the Conservatives to come clean about how they will pay for these tax cuts…

Without decimating schools, hospitals and police forces across the country.

The answer is clear: a tax rise somewhere else.

And we know from the past what tax the Conservative Party loves to raise: VAT.

To pay for their unfunded tax promises, the Conservative Party would have to raise VAT to 20.5%.

Next year that would mean a tax rise of £389 for the average family.

It's the Tory VAT bombshell.

Under the Conservatives, the richest 3,000 families in the land will be £233,000 better off because of inheritance tax cuts.

And everyone else will be stung for nearly £400 more in VAT.

Liberal Democrats have costed, in full, our proposals for tax cuts.

We can tell you, penny for penny, pound for pound, who pays for them.

We will not have to raise VAT to deliver our promises.

The Conservatives will.

Let me repeat that:

Our plans do not require a rise in VAT.

The Tory plans do.

Their tax promises on marriage and jobs may sound appealing.

But they come with a secret VAT bombshell close behind.

So if you're on an ordinary income, you have a choice.

If you want your taxes to rise: vote Labour or Conservative.

If you want your taxes to fall: choose the Liberal Democrats.

3. On Today this morning, Stuart Rose appeared to back VAT rises over an increase in National Insurance:

John Humphreys: You say that everybody knows where taxes ought to go up as it were. Do you think that VAT should go up then, rather than National Insurance?

Stuart Rose: Well I'd say as a retailer I'm not going to vote for VAT going up but as a citizen of the UK, if this is something that we need to do, then yes. But of course, the difference between National Insurance and VAT is that National Insurance is something that you have no choice about, as it's a tax on jobs, whereas VAT is discretionary: if you don't spend the money, you don't spend the VAT.

JH: A lot of retailers think - rather surprisingly perhaps in some ways - do think VAT is the right thing to do.

SR: Well, at the end of the day it might be. Of course what the government has to do - whichever government is in power - has to look for certain income streams, and VAT would be an income stream which would give a level of certainty.