Today’s announced tax changes, designed to deal with the fallout from the abolition of the 10p tax rate, will cost £2.7 billion (to be funded by extra borrowing).
Of that, only £630 million will go to people who lost out in the first place due to the abolition of the 10p rate.
In other words – more than three quarters of the cost of today’s announcement won’t go to the people it’s designed to help.
Whatever happened to prudent financial policies I wonder?
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15 Comments
How come Labour attack us for not being able to say how we’d fund our polices. But can suddenly find £2.7 billion at next to no notice?
Lord Sainsbury?
That’s an awful lot of money to spend on a by-election.
If they need a bridge in Crewe this might be the time to ask for it 🙂
Paradoxically this may actually be the right thing for the economy at the moment – it needs an economic stimulus and the governmnet is taking extra money out through the fuel tax accellerator.
Just bizarre that given all of Gordon’s and Darling’s statements and the lengths they went to to justify the budget that now they’ve completely caved in and adopted our policy of higher personal allowances – which they claimed was too indiscriminate and couldn’t be afforded etc….
Its cost them dear – not just the £2.7bn but a heck of a lot of credibility has gone too.
Paul L,
this may be presented as economic stimulus for the enterprise of state, but it is paid for by the inflationary effects on the rest of the economy.
Actually I don’t think they even had the wit to argue that this was why they were doing it – its more basic panic!
No I was just thinking that we really do need to put more consumer spending in just now.
Inflation is an interesting one – our inflation is of course price led rather than demand driven, with world commodity prices looking higher because the pound is falling – especialy true in the oil price – expect a fall in oil prices in the next six months.
Any good monetarist would argue that all the extra debt financing (personal credit availability, the mortgage bubble, £50bn for NR, £12bn BoS, PPP, PFI etc), which is not only all designed to be kept off the national balance sheet so as to stop Brown from breaking Brown’s ‘Golden Rules’, but is also adding to our money supply and therefore influencing inflation and our currency exchanges.
The only ‘state enterprise’ the Brownites within the New Labour project were interested in was getting into office and staying in office.
On oil: expect a modest downwards correction in the next six months before it turns inexorably upwards again and hits a new medium term trend line between $200-250. After that (5-10yrs?) demand cycles should have reduced our dependancy to make it more affordable.
The big question is whether global political instability will maintain current levels of influence on prices in the upcoming period.
You are wrong Mark. The chancellor has made it perfectly clear that he has deliberately extended his tax cuts to those in the 18-40k bracket in view of the issues with Utility bills and vehicle fuel. That has been explicit.
40kers had already had £440 over the 2p cut. So I’m not 100% happy with that decision. But you are complaining about a smaller state and less taxation?
If only this result had been achieved 4 weeks earlier.
Hywel: Government’s borrow money as one means of financing action. That is hardly news. It has been the way of the world for a very long time. even when we had Liberal government it goes back that far.
The worry about Tory and in so far as it matters Lib Dem spending plans is they tend to go beyond what is available by the combination of taxation and other revenue and the lines of credit, kept within reasonable limits.
“the desperate act of a government in dire straits” FT p, 2 today. ‘nuf said.
Chris, this isn’t “a smaller state and less taxation”, this is a state just the same size, with less taxation and more borrowing. Or rather, a bigger state with more spending! Since this is effectively new government spending, having further unbalanced the books. Its fundamentaly unsound, especially concidering we already one of the largest public debts in the world.
This is aside from arguing if the first place we should cut taxes is those earning over £40,000.
Er… isn’t raising the personal allowance one of our policies? Seems churlish to moan when the government do exactly that. And a golden opportunity to get press coverage for one of our policies squandered.
Bad Lib Dem publicists! No cookie!
A lot of people seem here to think we still have a policy of raising personal allowances.
While it would be excellent if that were the case, my understanding is that we abandoned that policy with our latest tax package (‘Reducing the Burden’) in favour of a larger (4p) cut in the basic rate of income tax.
The aim of raising the personal allowance has been reduced to the status of an aspiration or long-term goal.
The previous policy paper (‘Fairer, Simpler, Greener’) did propose a significant rise in the allowance for both income tax and National Insurance, as well as a welcome rise in the threshold at which the top rate cuts in (from £40K to £50K).
However these elements of the original package were deemed to be no longer affordable once we committed to the 16p income tax rate, which was adopted because of the need to avoid an increase in marginal tax rates once the local income tax (estimated at 3.5p in the £) was taken into account.
One drawback of the current policy is that it does little to help the low-paid, who surely need compensating given the huge hikes in green taxes being proposed (some of which would be regressive in their distributional impact).
One way around this problem is that we should be diverting most of the estimated £15 billion of savings in government spending (which our Treasury team have promised for a long time now, but which I haven’t seen spelt out yet) into a big rise in the personal allowance rather than spending projects of our own.