To raise VAT or not to raise VAT
One of the thorniest questions facing the coalition before this Budget has been whether to raise VAT. The Tories were keen to avoid it, aware that Labour will say "I told you so" and will claim that it is an unfair and regressive tax which hits the poorest - some pensioners and those living on benefits - who will not be helped by income tax cuts. Ironically, it was Vince Cable who when shadow chancellor argued in favour of raising taxes on expenditure (and housing - remember the mansion tax?) and cuts in income tax.
So, what were the arguments inside the coalition for and against a VAT rise?
• A VAT rise produces a lot of cash fast
• Treasury officials like it - they advised Alistair Darling to put it up (and during the election he refused to rule it out)
• It gives you revenue to cut other taxes - just as Margaret Thatcher's first Chancellor, Geoffrey Howe did
• Vince Cable's in favour
• The coalition can claim that things were worse than expected when they looked at the books so they had no choice
• Labour will say "you were warned. The Tories always increase VAT"
• David Cameron said the Tories' plans did not require an increase in VAT
• Nick Clegg said the Lib Dems' plans did not require an increase in VAT
• Nick Clegg appeared in front of an election poster warning of a Tory VAT "bombshell"
• Some on the right - such as the Taxpayers' Alliance - are now campaigning against a rise
For weeks, my hunch was that the Tories would do all they could to avoid a rise in VAT but expensive promises to give poorer workers an income tax cut, plans to ameliorate today's bitter medicine with schemes designed to protect the elderly, poor and children and moves to cut corporation tax and cut the rise in National Insurance for businesses may mean they simply need the money.
If so, they are likely to defer the rise until next year in the hope of stimulating consumer demand whilst the recovery is still weak.