Alan Johnson: Tax rise has hit people hard when they can least afford it

It means nearly 12p on a gallon of petrol. For someone with a medium sized car whose mileage is moderate it will cost an extra 58– excluding the extra paid because of the recent increases in petrol prices. For goods in the shops that are VAT rated, one- fifth of the cost will now go to the Government in tax.

We believe that VAT is the wrong tax to raise. Funnily enough so did the Conservatives and the Liberal Democrats – but that was at the general election.

When Nick Clegg wasn't signing the pledge not to increase tuition fees, he was unveiling posters predicting a "VAT bombshell". During the election Labour proposed an alternative – a rise in National Insurance Contributions (NIC's) which the Tories said was a "jobs tax." Yet the Chartered Institute for Personnel Development estimates that the VAT rise will cost 250,000 jobs – three times the number associated with a rise in NICs.

Increasing VAT at this time will hit people hard when they can least afford it. It also threatens to stifle the economy. Strong economic growth and employment creation is the true test of whether this Tory-led Government's rhetoric on the economy holds true. But the signs are ominous.

We have argued that the Government is cutting public spending too far and too fast; that the private sector is not yet strong enough to take up the slack that will be left from the cuts. If the consequence of the cuts is weak growth and higher unemployment then clearly the government will have got it badly wrong. Without growth there will be no recovery and the consequences of cutting too deeply, too quickly can be seen across the Irish Sea.

I hope in 2011 we can have a proper debate about why there is a deficit because so far what we have heard from the Conservatives has been an attempt to deceive the public.

The deficit was caused by a global financial crisis. It was a necessary part of ensuring that recession did not turn into global depression, that people's savings and mortgages were protected, that unemployment didn't reach the levels experienced in the 1980s and 1990s.

It is why all the major economies have a fiscal deficit – which does have to be reduced – but with care and caution to ensure we don't fill one economic hole by creating another.

The US, which has a proportionately higher fiscal deficit than ours, plans to reduce it by less than half over the next five years. Japan, which has roughly the same level of deficit, has learned from its experience over the past 10 years and plans to cut by less than a quarter. It is clear the Tory-led government's cuts are a political choice driven by dogma rather than sound economics.

The deceit is also used to justify breaking promises. Nick Clegg claimed that the mother of all broken promises – his party voting for the tripling of tuition fees was because of the size of the budget deficit.

Yet he knew precisely what that deficit was when he was signing the pledge not to raise student fees by one penny. In fact when he came into government, the newly created Office for Budgetary Responsibility found that the deficit was actually some 10bn less than forecast.

Labour had planned to reduce the deficit by half over four years. Our last budget set out 57.5bn of savings and tax rises. The difference between this government and us is not so much whether the cuts are "fair". The real issue is whether the Government's approach is the right way to support jobs and get back to strong growth.

The global economic downturn of 2008 created havoc across nations and continents. Labour brought the country out of recession with strong growth in 2010. That momentum is running out.

The VAT rise will destroy some 5bn of private sector economic activity. There is an alternative route that will be tough, but avoids long term damage to our economy and our society.

Unless the Government switches to this Plan 'B', 2011 looks like being a glum year for the British people.

Alan Johnson is the Shadow Chancellor. He is MP for West Hull and Hessle.