Brown refuses to rule out higher VAT rate as Cameron launches attack

The admission came in Prime Minister's Questions under a grilling from David Cameron.

After being challenged to deny the plan had been on the table before this week's pre-Budget report, Mr Brown said: "I've said we considered all options but we rejected options."

Mr Cameron fired back: "So there we have it from you. This plan was considered - even higher VAT."

Mr Brown responded: "We rejected it because as the Chancellor said on Monday we chose the options that were fairest to ordinary and hard-working families."

The Tory leader then repeatedly challenged Mr Brown to rule out a future increase in VAT beyond the current plans. The exchange came after a Treasury document accidentally posted on a government website disclosed a rise to 18.5 per cent in 2011 had been almost agreed days before the PBR was unveiled.

Mr Cameron taunted the Prime Minister by saying the document proved that a VAT rise was not some "madcap idea" that had been quickly discarded. "I've got the document right here," he said. "You can get it on the internet. It's absolutely clear you are planning a VAT bombshell to hit every family in the country." He said a senior Treasury minister had even signed the document dated on Monday.

That was later denied by Alistair Darling who said minister Stephen Timms's name had been written in by an official without his knowledge. In a stormy session of Prime Minister's Questions, Mr Cameron derided the 2.5 per cent point cut in VAT to 15 per cent, saying it would leave shoppers unmoved.

"You are proposing to borrow a huge amount of money to cut prices marginally, when they are already falling, and to hit every family with a tax bombshell in two years time," he said.

"What is so stimulating about that? Idon't know where you go shopping but the shops are discounting by 20 per cent and 30 per cent already." But the Prime Minister hit back to roars of Labour approval: "You are the do-nothing leader of a do-nothing party."

A series of disputes were swirling around the complex pre-Budget report package, which injects £20billion into the economy over the next two years, but then imposes tax rises and spending cuts to slow down a massive increase in state debt to a trillion pounds.

Another row was over the accuracy of the Treasury claim that higher taxes will only hit those earning more than £40,000. The Tories say that people on £20,000 to £40,000, including teachers and police officers, would pay more.

Meanwhile, Mr Darling launched his own fightback against the VAT claims. Opening an emergency Commons debate this afternoon, he accused shadow chancellor George Osborne of painting a false picture by leaving out tax changes that help the middle classes from his calculations.

Mr Darling's claims are backed by impartial Treasury officials but the row hinges on whether a £120 tax relief announced in May as compensation for the 10p tax band is counted or not.

The Institute for Fiscal Studies said that people earning £20,000 to £40,000 would pay more than they do today, when the £120 is taken into account. But the IFS also agreed with Mr Darling that the same group would pay less than they would have done by 2011 if the PBR changes had not been announced.