This budget cuts the deficit further and faster than the economic conditions require and further than even the Tories promised in their manifesto. It leaves the Liberal Democrats fronting up policies which are the exact opposite of those they fought the election on just a few weeks ago.

The Chancellor’s budget day declarations that the overall package was ‘progressive’ have rapidly unravelled after the Institute for Fiscal Studies analysis demonstrated that it was leftover policies from Labour’s March budget which neutralised the sharply regressive Con Dem package now before Parliament. The IFS also correctly pointed out that the Treasury tables measuring the overall effect of the budget by income deciles, conveniently stopped before the bulk of the sharply regressive benefit cuts outlined in the Budget Red Book are due to be introduced.

We are now seeing the latest attempt at Government doublespeak with the declarations from both Tory and Lib Dem Cabinet Ministers that VAT is not actually a regressive tax after all despite that fact that we all thought it was and they all said it was before the election! In a dictionary of economic terms ‘regressive tax’ means that a tax which takes a higher proportion of income from those on lower income levels. Here’s why VAT is regressive:

The Office of National Statistics points out that with any sales tax the amount each household pays is determined by their expenditure not their income. In the case of VAT there are some zero rates (food, children’s clothes, books and newspapers) which make the effect of the tax less regressive than would otherwise be the case, but there are also other exemptions that especially help the better off. For example, there is no VAT on financial services, private education or healthcare, foreign holidays or second homes; all are services which are used by those on higher incomes and hardly at all by those who are at the very low end of the income scale.

The Tory blogosphere has prominently featured arguments that because households higher up the income scale pay more in VAT in absolute terms that this makes the chosen Con Dem option of raising money by hiking up VAT somehow ‘fairer’ than other tax raising options such as increases in National Insurance or Income Tax. This bizarre line of reasoning is refuted by the Institute for Fiscal Studies budget analysis. This reveals that less than one percent of the resources of the those in the top 10%’ of income goes in VAT following the huge rise to 20% but 2.3% of the much lower income of the poorest 10% goes in VAT payments.

The contrast with income tax, which is progressive, could not be clearer 24.4% of all income tax was paid by the top 1% while the bottom 50% of all earners paid just 10.4%. With VAT, a disproportionate amount is paid by the poorest and no-one can escape paying it however low their income. Thus the burden of paying the 2.5% increase in VAT will fall most heavily on the poorest households, on pensioners and on charities and the gap between the poorest and the richest will increase as a result.

No wonder the Liberal Democrats warned about a Tory tax bombshell just a few days before they helped to drop it right on top of all of us.