F15: Cutting VAT to Ease the Cost-of-Living Crisis

Submitted by: 10 Members.
Mover: Christine Jardine MP (Spokesperson for the Cabinet Office, Women & Equalities and Scotland).
Summation: Sarah Olney MP (Spokesperson for the Treasury and Business and Industrial Strategy).

Conference believes that:

1. All UK households, and particularly the least well-off, deserve timely, robust and fair support with the cost-of-living crisis.
2. The Conservative Government is failing British households and businesses in these unprecedented circumstances.
3. The UK is in need of effective economic measures that will support families with the cost of living, facilitate economic growth, and help keep inflation in check.

Conference notes with concern that:

1. According to the latest OBR forecast, households are experiencing the largest fall in living standards in a single year since 1956 due to rising inflation, low earnings, and tax rises.
2. Inflation currently sits at 9.1% - a forty-year high - and is expected to reach 11% this year.
3. Salaries aren't keeping up with inflation, with average pay excluding bonuses falling by 2.2% in real terms in the year to May.
4. Food prices are rapidly rising, with the cost of essentials such as meat, vegetables, pasta and milk up by 15% to 50% in the year to April.
5. The typical household energy bill went up by nearly £700 in April and will rise by another £830 in October.
6. Filling up a typical car with petrol now costs more than £100, which disproportionately hurts rural areas with fewer public transport options.
7. A household on average earnings will pay an additional £210 in national insurance and income tax this year, and £630 next year.
8. Tens of thousands of struggling households are set to miss out on the Government's £150 Council Tax rebate due to not being registered for direct debit.
9. Small businesses, who are not protected by the energy price cap, have seen their energy bills soar, and are grappling with a 22% increase in input costs - yet they have received no support from the Government.
10. The Bank of England has warned that the UK will slide into recession this year, whilst the OECD expects Britain's growth in 2023 to be the worst in the developed world, except for Russia.
11. The support payments announced by the Government fail to match the cost-of-living hit caused by Conservative tax rises; real-terms cuts to benefits and pensions; the scrapping of the £20 per week Universal Credit uplift; spiralling energy bills; rising fuel prices; and increasing shopping costs.
12. The Government was too late in introducing a windfall tax on the super-profits of oil and gas producers; it has failed to tax super-profits accrued before May 26th 2022; it has added carve-outs allowing oil and gas giants to save billions in tax; and it will raise less than £5 billion for cost-of-living support, when a similar tax in Italy will raise nearly £9 billion.

Conference further notes that:

1. Due to inflation, the Treasury is expected to raise an additional £40 billion in VAT receipts over the next four years, according to official OBR figures.
2. VAT is a regressive tax, with lower-income households spending a larger proportion of their incomes on VAT than higher-income ones.
3. Cutting the main rate of VAT to 17.5% for one year would benefit every household in the UK, by putting an average of £600 back into their pockets.
4. When a 2.5% cut to VAT was last implemented, in December 2008, inflation fell by 1% within a month, and average inflation for the duration of the measure remained 1.4% lower than the year before.
5. Cutting VAT would boost high streets and facilitate economic growth, as retail sales rose by about 1% and aggregate expenditure by 0.4% when a similar VAT cut was last implemented in 2008.

Conference reaffirms Liberal Democrat calls to:

1. Scrap the unfair National Insurance hike which disproportionately impacts low earners.
2. End the unfair freeze of the Income Tax personal allowance, which is a stealth tax falling disproportionately on low earners.
3. Protect pensioners from rising prices, including the 1.5 million low-income people on pension credit, by uprating pensions in line with the latest inflation forecast for this year.
4. Reinstate the £1,000 boost to Universal Credit, to ensure that the most vulnerable households get proper support.

Conference further calls on the Government to:

1. Cut the main rate of VAT from 20% to 17.5% for one year, to support every family and business in the UK with the spiralling cost of living, help keep inflation in check, and boost the UK's economic growth.
2. Commit to providing families with additional cost-of-living support in the autumn, when household energy prices will increase by £830.
3. Urgently support small businesses with their energy bills - especially in energy-intensive sectors such as manufacturing and hospitality - to prevent closures and help avoid further price rises.
4. Support households in rural communities which face even higher fuel costs, by increasing Rural Fuel Duty Relief from 5p to 10p and expanding it to more rural areas.
5. Provide local councils with all necessary funding and support to ensure that no household misses out on the £150 Council Tax rebate - including by undertaking information campaigns and mailing cheques directly to beneficiaries; and extend support to low-income households in Council Tax bands E and F, who are currently excluded.
6. Close the loopholes in the current windfall tax by ensuring it applies to super-profits accrued since October 2021; scrapping carve-outs that allow oil and gas giants to offset their tax liabilities against investments they were going to make anyway; and setting a target of raising no less than £10 billion over one year, in line with similar taxes implemented in other European countries.

Federal; except 2. and 3. and 5., which are England only.

Mover: 7 minutes; summation of motion and movers and summation of any amendments: 4 minutes; all other speakers: 3 minutes. For eligibility and procedure for speaking in this debate, see page 9 of the agenda.

The deadline for amendments to this motion , is 13.00 Monday 5 September, see page 12 of the agenda. Those selected for debate will be printed in Conference Extra and Saturday's Conference Daily. The deadline for requests for separate votes is 09.00 on Saturday 17 September, see pages 8-9 of the agenda.