Ed Davey on tax cuts

Via Reuters:

“We will go into the next election with not just tax cuts for people on low and middle incomes, but net tax cuts overall, and that is a big shift for the party,” said LibDem MP and campaigns chief Edward Davey.

He said the party would seek to reallocate 20 billion pounds of public spending if elected to meet LibDem priorities, with any surplus passed on as tax cuts, under proposals to be considered by members at their Bournemouth conference.

Since the party’s creation in the late 1980s it has argued for consistent or rising government spending.

But Davey said spending had risen so much under three successive Labour administrations that there was now room for cuts.

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  • Three cheers for Ed Davey

  • John V. Cable 3rd Sep '08 - 11:34pm

    “It is utterly irresponsible to present plans for swingeing tax cuts without saying who would pay for them.”

  • broncodelsey 4th Sep '08 - 12:06am

    This is getting confusing,just 3 years ago the Lib Dems were fighting an election promising to increase taxes and warning against Tory cuts and unfunded promises;now the message is taxes are too high and suddenly £ 20 billion can be cut.

  • Steve Travis 4th Sep '08 - 9:56am

    Lets hope we also see reform of the system away from taxing income to taxing unearned wealth.

  • David Evans 4th Sep '08 - 12:24pm

    The problem is that Labour has found a way to embed a massive proportion of their spending increases in such a way that they can’t be undone. Under PFI long term contracts (30 years and over) have been entered into which cannot be undone (except by paying massive compensation). These will be a millstone around the neck of any future government wanting to roll back the excesses of the last 10 years. Likewise they are finding ways take future earnings now (viz the miners’ pension fund) and using it to cover current spending.

    Don’t get me wrong, Labour have introduced massive inefficiency into public spending. The trouble is that Gordon Brown has made these inefficiencies effectively permanent.

  • David Evans 4th Sep '08 - 1:05pm

    The problem is that these organisations are set up in such a way that the revenues of the companies are in fact moved out very quickly into other bodies pockets and also into pay for individuals who are involved. These bodies are not necessarily paying lots of UK tax (if any).

    They are then sold on at a profit to another body which still owns the asset, but effectively owes the revenue stream elsewhere. Thus a tax bill can’t be paid and – hey presto – hospital may have to close. Guess who ends up paying more to keep it open.

  • Eeirely I had exactly the same thought as James on this. Previous windfall taxes have been levied to correct largesse as a result of government policy errors.

    Some PFI deals would tend to fall into that category and the threat of a windfall tax might be sufficient to make the companies concerned consider being bought out of the deals on more reasonable terms.

    It would be unwise though as a blanket measure, there’s nothing with the idea of PFI itself, only the terms agreed and the government’s decision to use it to keep debt off the books.

  • Hywel Morgan 4th Sep '08 - 3:20pm

    “It would be unwise though as a blanket measure, there’s nothing with the idea of PFI itself, only the terms agreed”

    I’m reminded of Blackadder wanting to edit a speech by changing one tiny detail – the words 🙂

    The problem with a retrospective windfall tax is it would make companies reluctant to contract with the government in the future as, in effect, all the certainties of contract would be removed. They would still do it I reckon but up their prices to take account of the risk.

    Windfall taxes should be used where companies have made an unexpectedly large profit due to some strange circumstances (the Carbon credits being a good example).

    However with PFI contracts the companies have made large profits – which is what they expected to do and was apparent when the contract was signed.

  • Windfall taxes are rarely a good idea, because they increase the risk premium in future. I also doubt that there is £20bn a year in fat to cut in PFI deals. (There is lots of fat elsewhere, although whether we have the guts to chop it and not spend the proceeds remains to be seen).

    By the way, I gather than conference has motions that include a rise in aviation tax for internal flights, and a new levy on foreign hauliers. The revenues of both will be used to raise govt spending. Both tax rises can be defended but it seems odd to me that immediately after saying we will cut tax and spending, we propose measures to raise tax and spending. Joined up thinking anyone?

  • Alex Sabine 5th Sep '08 - 2:35am

    Except of course that – rightly or wrongly – none of the three main parties is proposing anything remotely resembling “swingeing cuts in NHS spending”, so that’s a straw man.

    On the contrary, the Tories and Lib Dems are both being exceedingly (perhaps excessively) reluctant to commit to even a moderation in the rate of growth in spending.

    In fact, the Tories at one stage seemed to be proposing to spend even more than Labour on the NHS, which was pretty unfathomable.

    If anything, there is a “firewall” around the sainted NHS which rules out “cuts” being found from that source, even though its most ardent supporters wouldn’t deny there is considerable waste, bureaucracy and general misallocation of resources within it.

    In reality, even leaving aside the big increase in the wage bill as a result of the mishandled GP contract, demographic changes coupled with the rising cost of drugs inevitably put constant upward pressure on NHS costs.

    It’s a huge challenge just to keep a lid on that upward pressure and keep it within reasonable bounds, both to ensure the money isn’t wasted and in the interests of overall budget discipline.

    The problem is that Gordon Brown has been allowed to get away with smearing any proposal to spend less than his own projections – in any area of government policy – as a “cut”. This is really an abuse of language that allows him to control the terms of the debate, since it makes the dubious assumption that the exact amount and distribution of spending specified at any given time by him is the optimal baseline.

    (He displays the same breathtaking mendacity when criticising the opposition parties for “unfunded tax cuts” only to buy off the 10p tax revolt with precisely that.)

    Overall, it seems we’re looking to identify specific “cuts” or savings of £20bn in a budget of £600bn or so that grows by much more than £20bn every year – some of which (hopefully) will be returned to the public in lower taxes than would otherwise be the case. So let’s say the end result is govt spending that is £5-10bn lower than Brown’s projections for 2010-11. Too timid? I would say so. But how it can be portrayed as draconian is beyond me…

  • Clegg's Candid Friend 7th Sep '08 - 10:30am

    “… another £20bn that we are looking to cut from existing government spending. Most of the latter will be allocated to Lib Dem spending priorities with just a slither going towards tax cuts.”

    I wish that were the case, but the Telegraph today quotes Clegg as saying the opposite:

    “We will bear down on the ballooning government budgets. Vince Cable and I have been working over the summer identifying about £20 billion that should be reallocated and the vast bulk of it given back through tax cuts.

    Interesting also that the fig leaf of cutting taxes “from the bottom up” seems to have been discarded. Clegg is quite open about who is going to benefit:
    “We are now in a process of identifying what I believe will be the most radical package of tax- cutting measures for people on middle incomes,”


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