Letter from Westminster

I hope that for you and your family 2011 will be a good year. I am in no doubt, however, that for many people in Shetland as in the rest of the country it will be a difficult one as the economic realities continue to hit home.

Although we have known that it was coming for the last six months the raising of the VAT rate to 20 per cent was a chilly start to the new year. Locally, it makes itself particularly unwelcome at the petrol pumps where prices have been on a steep upward path for a few months now as the price of oil has been increasing. This makes it particularly important that the Treasury now instils more urgency in its approach to the EU for permission to charge a lower rate of duty in the isles to take account of the extra costs that we pay here.

I was also pleased to hear the Prime Minister speaking yesterday about trying to work out a scheme which would allow the government to take a lower level of fuel duty at times like this when oil prices are high and rising. I have been sceptical about this in the past but if it can be made to work and bring some relief to motorists who depend on their cars then I say go for it. It is a pleasing contrast to the last government which would never admit there was a problem let alone look for a solution.

It is worth reminding ourselves about why the VAT increase was necessary. Without it a further £13 billion per year would require to be taken out of public spending. It is ironic that those who make political capital out of the VAT increase are by and large the same people who will tell you that the cuts in public expenditure are already too large. Alistair Darling as chancellor in the last Labour government also intended putting VAT up. He also planned to increase the level of National Insurance contributions. At a time when we are looking to the private sector to grow our economy out of recession a tax on jobs always seemed nonsense. Likewise I do not hear any of those who oppose the increase in VAT proposing an increase in income tax or any other direct tax. If there is a good tax to put up then I am yet to find it but this is a necessary part of putting our economy back on an even keel. The concern about VAT has always been that it is based on what you buy rather than what you earn and as a consequence people on low incomes pay more than people on higher incomes. As a general rule this is true about taxes on purchases but VAT is not payable on all purchases but is intended to be targeted on luxuries. You do not pay VAT, for example, on food or children’s clothing. The obvious exception to the “luxury” rule is fuel which in communities like ours is anything but a luxury. That is why the need for early Treasury action to address the problem of fuel costs in communities like ours is so pressing.

Alistair Carmichael MP


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