I don't know how the question became the latest hot topic.  We suggested that a VAT rise may be necessary in "A balancing act"; but it is unlikely that putting VAT up to 20% has ever been absent from Conservative policy documents discussing the fiscal gap.  Now discussions of whether the Conservatives might be planning this are all over the newspapers. 

Paul Sagar on Liberal Conspiracy has brought Adam Smith out to argue against a VAT rise.   The discussion below is enlightening for a while before deteriorating into arguments about a flat-tax; that is what you get when you poke a stick at the Adam Smith institute.

I'm glad Paul has brought out this Adam Smith quote - always nice to remind people at the ASI that not everything the great man believed would suit their libertarian instincts. But I think it is unlikely that Smith would have preferred income taxes to a tax on consumption, had the former been at current levels in 1776. 

In truth, this argument is a bit academic.  As CoffeeHouse report, the VAT rise to 20 per cent is virtually certain, whoever wins. I am still glad that CentreForum pointed this out before it became conventional wisdom.  But if Osborne does not put it up in his first Budget, I would not like to be a large holder of Gilts.  The market wants to see some tough choices being made.  For Tories, it is not such a tough one: their natural constituency cares more about inheritance tax, amazingly. VAT is a soft target, regrettably: whoever wins will have to take much tougher decisions than this. In 1979, VAT rose from 8 to 15 (or by 87%); from 17.5 to 20 is just 14%. 

The biggest mistake any party could make right now would be to commit in advance not to do X or Y: the fiscal situation is very fluid, and the most likely consequence would be a loss of credibility.  Clive Crook discusses in the FT the consequences for Obama of making such commitments.