A shock rise in VAT to 18.5 per cent was a secret part of Alistair Darling's working plan to repay the debt racked up in Monday's pre-Budget report – until just hours before the statement was delivered.
The scheme to raise the duty, which would have taken effect from 2011, was so close to being announced that beleaguered Treasury officials did not have sufficient time to take out all references to it in the legislation that was published yesterday which will enact the Chancellor's pre-Budget report measures.
A briefing note published last night, providing guidance on how the VAT changes would be implemented legally, confirms that the duty will be lowered from 17.5 per cent to 15 per cent on Monday.
The note goes on to say: "The standard rate will then return to 17.5 per cent from 1 January 2010, and subsequently increase to 18.5 per cent in 2011-12."
The note was posted on a government website yesterday, prompting an embarrassing climbdown from the Treasury a few hours later.
A spokesman for the Treasury said last night that there were no plans to increase VAT in April 2011. "This was an option that was considered and rejected," he said.
"In all Budgets, ministers always consider a range of policy options, most of which are rejected. As the Chancellor said in his statement to Parliament: 'We considered a number of options to raise revenue in future years and I have chosen those which are fairest.' "
One Treasury insider admitted that some embarrassment must be attached to the matter, saying: "This was a mistake, there's no doubt."
Another Treasury official called the unexpected release of the memorandum a "drafting error".
A tax expert at one of the "big four" accountancy firms added: "It was obviously an option considered until quite late in the process."
Some economists suggested before the pre-Budget report that one approach the Chancellor could have taken was to have proposed a cut in VAT this year and next, which would be paid for by an increase in VAT in later years so the measure was transparently "self-financing".Reuse content