LibDems - no reason to raise VAT

LONDON (Reuters) - The Liberal Democrats said on Monday it had no plans to raise the VAT sales tax to help deal with the country’s record budget deficit.

Pedestrians walk past a Primark store in London, January 14, 2010. REUTERS/Suzanne Plunkett

Party leader Nick Clegg made the pledge as part of a 17 billion pound “fairer” tax package he said was necessary if the government was to win the support of the public for stringent tax and spending plans.

The LibDems may have a key role to play in one of the most tightly fought elections for nearly two decades, with opinion polls pointing to a so-called hung parliament where no one party has an overall majority.

But Clegg repeated his claim that no deal would be done before the May 6 election, saying he was not going to “second guess” what the electorate wanted.

The value-added tax (VAT) on most goods and services has been one of the central issues of the election campaign, as the main parties set out their tax plans to deal with a budget deficit of 163 billion pounds this financial year.

“Our plans do not require an increase in VAT precisely because we have costed both our tax switch...and we have a fully costed approach to a first major step towards dealing with the structural deficit,” party leader Nick Clegg told reporters.

“We see absolutely no reason to raise VAT because we have done our homework, we have identified where money can be generated and where money can be saved.”

The Labour party, aiming for a record fourth consecutive term but behind in the opinion polls, is due to deliver its manifesto later on Monday, while the LibDems are to detail its own manifesto on Wednesday.

The Conservative party has not ruled out future tax rises entirely but has said a rise in VAT, currently standing at 17.5 percent, was not planned.

Labour has preferred to focus on a planned 1 percent increase in payroll tax, or national insurance, which the Conservatives have pledged to partly reverse.

The LibDems said they would include a clamp down on tax avoidance, close tax loopholes for the wealthy, introduce a 1 percent so-called mansion tax on homes worth more than 2 million pounds and increase aviation duties.

Clegg also proposed to raise the income tax threshold to 10,000 pounds.

“I do not believe people will accept the difficult decisions ahead if they don’t feel the tax system is working on their behalf,” he said.

Writing by Avril Ormsby