Clarke letter fuels VAT row

A FRESH ROW over VAT was ignited yesterday when Kenneth Clarke, the Chancellor, defended a claim that 'we exempt far too many goods and services from VAT in this country'.

Gordon Brown, the Shadow Chancellor, produced in the Commons yesterday a letter written by Mr Clarke last year which robustly defended his personal preference for extending the VAT base.

The exchanges came during a debate in which Mr Clarke delivered an upbeat assessment of the economy.

Mr Brown said: 'You do not want lower taxation. You want to extend VAT.' Mr Clarke retorted that there had been 'countless occasions' on which he had said other countries had lower rates of VAT and fewer exemptions. He added: 'That is not to be taken as a statement of policy intention now.'

In the letter to one of his constituents, written shortly before Mr Clarke left the Home Office to succeed Norman Lamont as Chancellor, Mr Clarke said: 'VAT is still imposed on little over half of sales, which is much more restrictive than the sales tax in most other countries.'

Labour now plans to seize on Mr Clarke's remarks to suggest the Government still plans eventually to extend VAT to other goods and services, including transport fares and possibly food and children's clothing. The exchanges follow a refusal by John Major in an interview earlier this year to rule out further extensions of VAT.

Mr Clarke said in the debate: 'The outlook for the British economy . . . is the most favourable this country has enjoyed since I first entered the House 25 years ago.'