The Sunday Telegraph, which always has good contacts within the Tory party, reported on 8th August 2009 in an article titled Tories study plans for 20pc VAT that
"The proposal [to raise VAT to 20%] is being “very actively considered” at the highest level, according to senior shadow ministerial sources.
It could be introduced within weeks of a Tory victory at the next election, which must be held by June, in a package that is also likely to include severe cuts to public spending.
...A shadow ministerial source said: “Tax rises will have to be part of the equation. It will be time for some strong medicine.”
By moving quickly to increase VAT after the election, senior Conservatives believe they will be able to pin the blame for the state of the public finances on Gordon Brown and his outgoing Labour government.
They would be following in the footsteps of Margaret Thatcher, who increased VAT to 15 per cent in the 1981 Budget, also at a time when Britain was struggling to emerge from a recession.
...It would hit charities and businesses which do not levy VAT – because they would have to pay the tax on items they bought but would not be able to recoup the cost from customers."
After the Sunday Telegraph scoop, Tories took to the airwaves to deny they were raising VAT, but of course they were lying. The lies were continued by Cameron into the election debates.
My assessment of this budget is that it's pretty much exactly what the Tories were intending to do if they had got a majority of their own. There appears barely any LibDem input - in other words this is a budget that the country refused to endorse by refusing to give the Tories a majority - yet we've got it just the same.
The LibDems need to start asking questions about just what they are getting out of this - If they are rubber-stamping this just for electoral reform in return, they will find they've been had, as I am pretty sure no electoral reform will be forthcoming. It's actually quite stunning that they've allowed themselves to be made responsible for a far-right budget and without protest.
One more thing - the VAT rise will bump up inflation, which means that the BoE will have to respond with rising interest rates, especially as the falling pound (which has been dropping like a stone against the dollar every since the Coalition took office) continues to stoke inflation in oil and food. So we will have a tightening fiscal policy at the same time as a tightening monetary policy, and at the same time as our main trading partners in Europe contract demand. Watch not only for a double dip recession, but for the budget deficit to increase as a result of these hair-brained Tory policies hitting growth.