Coalition wins crucial vote on VAT rise

A bid to scrap the 2.5% hike in VAT was overwhelmingly defeated in the Commons in a major victory for the Coalition Government.

The Scottish and Welsh nationalist move was rejected by a majority of 295, after a lengthy debate on the Budget-enacting Finance Bill last night.

MPs voted 321 to 246, a Government majority of 75, in favour of increasing VAT to 20% from January 4, 2011.

Treasury Exchequer Secretary David Gauke said the rise from January was "unavoidable" after inheriting a record budget deficit from the previous Labour government.

But SNP spokesman Stewart Hosie branded it "regressive, socially damaging and economically dangerous".

He warned it would hit jobs and push up prices on the high street just as Britain was clawing its way out of recession.

The Government was also facing a challenge from its own side in committee stage debate on the Bill.

A group of five Liberal Democrat backbenchers, led by Andrew George, tabled an amendment to limit the VAT rise to 18% - an increase of just 0.5% on the current rate.

Mr George (St Ives) said: "Of all the measures to restore the public finances it seems to me that a VAT rise has to be among the least welcome of all of the alternatives."

He said that as an "emergency" measure it should be time limited to two years when its impact on the economy could be considered afresh by Parliament.

Mr Gauke told him the VAT rise had to be seen in the overall context of the Budget and was the "least economically damaging" way to deal with the deficit.

A smaller rise in VAT undermined the "basic rationale" for the increase and would not allow the Government to deal with the deficit as quickly as ministers would like.

He dismissed calls for a time limiting sunset clause, saying this would have a damaging effect on the "pattern of expenditure".

Later analysis of the division list showed that Liberal Democrat Bob Russell (Colchester) voted against the VAT changes.

Mr George appeared to have voted both ways.

Shadow chief secretary to the Treasury Liam Byrne urged Coalition MPs to vote for a Labour-backed amendment calling for the VAT hike to be postponed until its impact on vulnerable groups was assessed.

Speaking after last night's vote, he said: "Tonight, we set a fairness test for Coalition MPs and they comprehensively failed it.

"In the last few days we've exposed how Britain's pensioners face an £8 billion VAT bill and how charities will be hit for millions of pounds.

"Tonight we gave Lib Dem and Tory MPs the chance to vote for a plan that would have protected pensioners and charities and they didn't have the guts to back us.

"It is the most extraordinary betrayal of Britain's most deserving.

"Tonight, all Labour MPs are being issued with details of how Lib Dem and Tory MPs in their region voted, along with a breakdown of the number of pensioners in their local authority area and region, and the VAT hit pensioners and charities now face.

"We will now take the fight to the constituencies of all the Coalition MPs who voted to press on, full speed ahead, with the unfair VAT hike for which they have no mandate."