Miliband to brand VAT rise 'wrong tax at wrong time'

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Indy Politics

With high streets braced for a last-minute shopping rush today before the rate of VAT goes up, Ed Miliband will warn that the increase will cost the average family £7.50 a week.

The Labour leader will denounce tomorrow's rise in VAT, from 17.5 per cent to 20 per cent, as the wrong tax at the wrong time. He will echo warnings from analysts that the increase will cost jobs, hit living standards and deal a blow to shopkeepers struggling to emerge from the economic downturn.

The increase will push the price of unleaded petrol up by 3p a litre, the cost of a pint of lager above £3 in London pubs, add nearly £10 to a typical 37ins television and raise the price of a Ford Focus by more than £300 to £15,518.

Many retailers have already suffered lower-than-expected sales because of the Arctic weather in the week before Christmas. Some are expected to absorb the rise initially, but warn they will eventually have to pass the cost on to consumers.

Tesco said it would freeze VAT on all non-food products in its sale until 25 January. Asda promised customers they would "hardly notice a thing".

Marks & Spencer said it was doing everything it could to ease the transition for customers. "Where we do need to raise prices for products that are already in store, we will phase these in over the coming months. The prices of all new products coming into store in January will reflect the new rate of VAT," it said.

Debenhams said it would not increase VAT "across the board" tomorrow, and that higher prices would be limited to new-season products as they arrived in store. It added: "We will aim to keep price increases to a minimum but there are cost pressures in our supply chain, including higher VAT, which will be reflected in some of our spring/summer 2011 prices."

The health and beauty chain Superdrug is to absorb the VAT rise on 2,000 of its own-brand items, saving customers an estimated £3 million a year, it claims. Steve Jebson, its commercial director, said: "Absorbing the cost of the VAT hike on our own products ensures customers can continue to trust that we'll always do everything we can to offer the best deal."

The British Retail Consortium said: "The prospect of the VAT rise gave a modest boost to the sales of big-ticket and high-end goods in December. Retailers are discounting in a big way now to make up for missed sales [caused by bad weather]. That may mean the impact of the VAT rise is lost amongst discounts, but ultimately retailers can't absorb the cost indefinitely."

Mr Miliband will signal his determination to make the tax rise a dividing line between Labour and the coalition Government in a speech during campaigning in the Oldham East and Saddleworth by-election toda, claiming it is the beginning of a "Tory-led" economic agenda moving from "Downing Street to your street".

He will say: "The VAT rise is the most visible example of what we mean when we say the Government is going too far and too fast, because it's clear it will slow growth and hit jobs."

Mr Miliband will argue that inflation, running at more than three per cent, is already eroding the standard of living across the country. "When family budgets are already squeezed, now is not the time for a VAT rise to make it even harder to make ends meet. The VAT rise coming in tonight means a hit of £7.50 each and every week."

He will take a swipe at the Liberal Democrats by pointing out that the figure was used by the party in its general election posters.

The Conservatives have accused Labour of "hypocritical opportunism" for its opposition to the VAT rise, which is expected to raise an extra £13bn a year towards reducing the national deficit. The Tories claim that Labour would have raised VAT if it had won the election, pointing to remarks by Alistair Darling, the former chancellor, supporting it as a way of bringing Britain back into the black.