Labour's Alan Johnson urges VAT rise 'rethink'

Alan Johnson has warned about the threat of a 'double dip' recession

Shadow chancellor Alan Johnson is urging a last-minute rethink on Tuesday's planned increase in VAT from 17.5% to 20%.

In a letter to Chancellor George Osborne, Mr Johnson warned the move was likely to hit the poor hardest.

And he claimed it could lead to the loss of 250,000 private sector jobs.

Conservative deputy chairman Michael Fallon accused Mr Johnson of "hypocritical opportunism," arguing the rise was "unavoidable".

Raising the top rate of VAT is a move the Treasury hopes will raise an extra £13bn to fight Britain's budget deficit.

But Mr Johnson has repeatedly warned about the dangers of a "double dip" recession - and the outgoing head of the CBI, Richard Lambert, has said planned public spending cuts could lead to a dramatic slowdown in the UK's economic recovery.

'Late stage'

In his letter to the chancellor, Mr Johnson writes: "The increase in VAT will hit people hard when they can least afford it.

"Motorists, who have seen significant increases in petrol prices recently, will suffer particularly badly by having to pay a further 11.6p per gallon. The owner of an average size car who drives 20,000 miles a year will pay an extra £58.

"The Chartered Institute of Personnel and Development estimate that raising VAT to 20% will result in the loss of a further 250,000 private sector jobs."

He accuses the coalition government of being "bereft of a plan for growth" and of wrecking Labour's "measured path to recovery".

"Businesses, consumers will suffer and of course, as the prime minister said during the general election campaign, it is the poorest who will suffer the most.

"That is why, even at this late stage, I ask you to think again about raising VAT," the letter concludes.

Mr Osborne has resisted calls for a U-turn on the VAT increase, insisting in a recent interview with The Spectator that it was a "structural change" that would not be reversed when economic times improved.

"The VAT rise is not temporary. It can't be. We are talking about a totally different scale of revenue and the VAT rise is a structural change to the tax system to deal with a structural deficit," he told the magazine.

'Heavy lifting'

And Conservative Party vice-chairman Michael Fallon went on the attack, claiming the coalition had been forced to act as a result of Labour's economic mismanagement.

"This is exactly the kind of hypocritical opportunism that the public has come to expect from Alan Johnson," he said.

"The VAT rise is quite simply unavoidable after 13 years of Labour rule took us to the brink of bankruptcy.

"It is a progressive and fair way of repairing the mess that Labour left behind."

Mr Fallon also claimed Labour would have raised VAT itself if it had won May's general election, pointing to remarks made in July by former chancellor Alistair Darling, who has said he believed it could be a weapon in tackling the deficit.

In his new year message, Prime Minister David Cameron insisted the government had a "credible plan for restoring confidence in our economy," claiming that the UK could become an international success story.

But he also warned that "a lot of the heavy lifting will happen in 2011".

Motorists will be hit by a double price rise, with fuel duty set to increase on New Year's Day - which taken together with the VAT rise will add around 3.5p to the cost of a litre of both petrol and diesel, the AA estimates.