Tories accuse Brown of 'lifetime' tax rises

Gordon Brown was accused by the Tories of planning temporary tax "giveaways" now, followed by "lifetime rises" later.

Shadow chancellor George Osborne claimed the Government had lost the ability to manage taxpayers' money and control public spending.

Opening a rare emergency Commons debate, he warned ministers were going to leave a "basket case of an economy" for the Tories to sort out when next in government.

Roared on by Tory backbenchers, Mr Osborne claimed Chancellor Alistair Darling's Pre-Budget Report on Monday had "started to unravel" from the moment it was delivered.

As the noise rose, with Labour and Tory backbenchers trying to intervene, Speaker Michael Martin had to appeal for calm.

"It is not a good thing shouting across the chamber," he told both sides.

"Remember there are people out in the country who have difficulties and want to hear the case that's being put before the House."

Tories called for the debate after claiming the PBR was more like a full Budget, which has at least four days' debate and can be voted on.

Welcoming the Speaker's decision to grant it, Mr Osborne said it was "astonishing" the Government did not want to debate the PBR and accused the Prime Minister of "running away from the argument" because he had lost the argument.

"This Budget has started to unravel from the moment it was delivered.

"First, the doubling of the national debt shocked the entire country.

"Then, within minutes of the Report being published, it became clear that the National Insurance rises would, contrary to the Chancellor's claims, hit people on modest incomes."

He said the Chancellor had also been "less than candid" about "stealthy duty" rises on drinks and petrol.

"Then we discovered there was a £100 billion black hole in the tax revenues, with no explanation of how it would be filled."

Retailers had been left with a "logistical nightmare" for implementing the temporary VAT cut.

Last night, the Chancellor made a "u-turn" on the proposed hike in whisky duty.

"Finally, it has been revealed in an official Treasury document ... that there is a secret tax bombshell to increase VAT to 18.5 per cent."

Mr Osborne said ministers had destroyed public trust in the Government's motives - "confirming what everyone suspects that Labour's temporary giveaways now are dwarfed by permanent tax rises later.

"Normally it takes a week or so for the Prime Minister's Budget to come unstuck. This one has completely fallen apart in just 48 hours."

The Labour Government had inherited a "golden economic legacy" but was set to "bequeath to their successor a complete basket case of an economy", with national debt set to double to £1 trillion.

The shadow chancellor said independent think tank the Institute for Fiscal Studies "comprehensively demolished" Mr Darling's claim that only those earning over £40,000 will be worse off as a result of the hike in National Insurance.

"Anyone earning over £19,000 will pay more tax than they do now as a result of Monday's budget," Mr Osborne said.

After the abolition of the 10p rate of income tax, the Prime Minister had said "very few" people would want to change the simplified two rate system.

Mr Osborne said: "It turns out that one of those very few people was the Prime Minister himself a year later."

There remained 500,000 people who lost out in the 10p fiasco who were not compensated for in Mr Darling's statement, he added.

"The Government is giving £20 billion in temporary tax giveaways, taking back £40 billion in permanent tax rises.

"Giveaways for Christmas, tax rises for life. That is not a stimulus, it's a tax bombshell.

"And it will make the recession worse because it will make the recovery more difficult."

He accused Treasury ministers of peddling fantasy figures" about when the budget would move back into surplus and accused Mr Brown of planning "temporary tax giveaways and lifetime rises in tax afterwards".

Labour former home secretary David Blunkett challenged Mr Osborne on the origins of the economic crisis.

"Are you seriously telling the House and the country that the problems of America, Europe and Asia are down to the changes that have taken place over recent months in Britain?

"Have you completely lost your marbles?"

Mr Osborne said: "What I'm saying is the Government didn't fix the roof while the sun was shining.

"We entered this recession with the worst budget deficit in the developed world."

The shadow chancellor attacked the temporary VAT cut, which he said would cost traders millions to implement.

"Retailers, far from rushing to support the move, have been quick to point out the administrative nightmare or reticketing prices, reprinting catalogues and price lists, reprogramming tills which will cost them tens of millions of pounds."

He questioned how high the Chancellor had considered raising VAT after it emerged an impact assessment had been prepared for an 18.5% level.

Mr Osborne asked why Treasury Financial Secretary Stephen Timms had "signed off" the document proposing an 18.5% level.

He added: "The second thing I would like the Chancellor to confirm or deny is that they were considering further increases in VAT, indeed specifically a rise to a 20% rate of VAT in the year 2012."

Mr Osborne said the banking bailout had "failed" because loans to small businesses had dried up.

He said: "The Chancellor told us in October that the purpose of the bank recapitalisation was to restart lending to the real economy.

"On that test even he must agree that bank recapitalisation has failed.

"It might have rescued the banks and the bankers but it has not rescued the economy."

He said there was a need for "radical" action on monetary policy, including a new state institution to underwrite lending to British business for a commercial insurance fee.

Mr Osborne continued: "The Government didn't want this debate because they didn't want to face the truth.

"They mistook a housing bubble for stability, they went on a spending spree and called it prudence, they boasted over and over again that they had abolished boom and bust.

"As a result they neither saw the boom nor prepared for the bust.

"Now their emergency budget is unravelling, their secret tax bombshell is revealed, their scorched earth policy is leading this country's economy to ruin.

"They have run out of money and the sooner they are run out of office the better."

Mr Darling conceded the Government had considered a "large number of options" to raise money but insisted Mr Timms had never seen the plan for an 18.5% VAT rate.

He said: "I, as any Chancellor would in the run up to the Pre-Budget Report, considered a large number of options in relation to just about every aspect of tax and spending.

"I concluded that, as I had to raise money in order to ensure that our borrowing is reduced in the medium term, the best and fair way to do it would be to increase National Insurance contributions by 0.5% as I announced on Monday.

"I also said that while VAT would come down to 15% it would return to its 17.5% rate at the end of 2009.

"That is the Government's position, it remains the Government's position."

Mr Darling said he asked the Treasury's Permanent Secretary to investigate after he saw reports that a document containing the 18.5% figure had been posted on a website and signed by Mr Timms.

"What I found was this: that the Financial Secretary had not, in fact signed that document.

"It transpires that someone within either the Treasury or HM Revenue and Customs had typed the Financial Secretary's name alongside an impact assessment which he did not know about, had not seen and he'd never authorised."

Mr Darling welcomed the opportunity for a debate on the Pre-Budget Report, saying it was a chance to set out a "clear choice".

"I believe that faced with the extraordinary economic circumstances we have today, there is a choice," he said.

"There is a choice between supporting people, supporting businesses, supporting the economy as countries are now doing across the world.

"Or walking away, saying we will do absolutely nothing and letting recession run its course.

"We have been here before in the 1980s and 1990s and we will never return to those days again."

The Government was determined to do "everything it can" to support people and businesses, Mr Darling added.

A combination of cutting VAT, income tax changes, increased child benefit and more money available to pensioners were all benefiting people and the economy as a whole, Mr Darling argued.

The Tories were "virtually isolated" in the belief that Governments should do nothing, he said.

Countries across the world were taking action similar to the UK's fiscal stimulus package to get their economies going.

Tory former Cabinet minister John Redwood (Wokingham) intervened to say the bank bailout had not succeeded in freeing up credit and called for the Chancellor to renegotiate it.

Mr Darling said recapitalising the banks had been "absolutely essential" and that as part of the bailout legally binding agreements would be put in place with RBS, Lloyds TSB and HBOS to ensure credit was made available.

Action being taken by the Government was intended to avoid the "high economic cost, the high social cost of abandoning people to their fate" that had been the hallmark of previous recessions, the Chancellor added.

Senior Tory Sir Patrick Cormack (Staffordshire S) said he hoped the Government's plans succeeded but asked if Mr Darling would quit if the recession lasted longer than anticipated.

He asked: "As one who remembers both of those recessions and was in this House at the time, whilst in the interests on the country I wish you well and hope your prescription succeeds - and I genuinely mean that - if we are not moving out of recession when you said you felt we would be and your measures have not worked, will you resign?"

Mr Darling said he considered Sir Patrick to be part of the "decent wing of the Conservative Party" but would not join him on his last remarks.