Vince on the PBR: “A good budget for bingo and boilers but not much else.”

Here’s what Lib Dem shadow chancellor Vince Cable had to say in response to Alistair Darling’s Pre-Budget Report statement:

What we needed was a national economic plan but what we got was a weak party manifesto. There has never been a deficit like this and we need a sensible and coherent plan for dealing with it.

“The Chancellor has ducked the hard choices on spending and cuts. Instead of facing up to reality he has chosen to move the goal posts by relying on fanciful growth forecasts. He could have used this Budget to make the tax system fairer. But instead people on middle incomes will be paying more tax while those at the top end continue to enjoy their loopholes.

“The bankers’ payroll tax is the worst type of gesture politics and a gift wrapped invitation to tax avoidance. The hidden costs of this budget will be borne by low paid workers who face a cut in real wages because of the 1% pay rise – which is lower than inflation.

“This is a good budget for bingo and boilers but not much else.”

There’s some interesting detail in the accompanying press release’s notes to editors, notably …

2% increase in tax on workers

The Chancellor has announced a further 0.5% increase in National Insurance in addition to the 0.5% increase announced last April for both employees and employers, amounting to a 2% increase in tax on workers. Furthermore, a 1% increase in NICs means that by 2011/12, people earning over £7,000 will pay 32% tax on their income (20% income tax plus 12% NIC)

Highly optimistic growth assumptions

The Government has assumed that the structural deficit has shrunk by 1% based on highly optimistic assumptions about growth and the output gap. In the 2009 budget the Chancellor assumed the cyclically adjusted surplus on the current budget in 2010/11 would be 6.4% – he has now decided it is actually 5.4%. Even with this assumption the Government is predicting the national debt will be higher in every year than was expected in the last budget.

Government has made it easy for bankers to avoid bonus tax

The bank pay roll tax will only be levied until the 5 April 2010, making this tax wide open to avoidance, for example:
a. Multiple bonus payments
b. Deferral of bonus payments until after April
c. Relating bonus payments for years other than 2009
d. Temporary increases in basic salaries
e. Payments in benefits in kind

Real pay cut of 1.5% for workers

A 1% pay increase for workers will mean a real pay cut of 1.5% as the Treasury predicts RPI inflation to be 2.5% in 2010/2011.

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21 Comments

  • David Blake 9th Dec '09 - 5:22pm

    I’ve had the TV in the background most of the afternoon, but have yet to see a Liberal Democrat comment either on BBC News or Sky. Have I just been watching the wrong channel at the wrong time?

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  • Stanley Theed 9th Dec '09 - 7:09pm

    David Blake.

    I did see Vince interviewed this afternoon on the BBC 24 hour News channel. It lasted a few minutes and might easily have been missed with all the other interviews, but he was not left out.

  • David Blake 9th Dec '09 - 10:11pm

    Thanks, Stanley – good to know.

  • Herbert Brown 10th Dec '09 - 12:20am

    “The hidden costs of this budget will be borne by low paid workers who face a cut in real wages because of the 1% pay rise – which is lower than inflation.”

    And yet Vince Cable was calling for a freeze in total public sector pay, never mind a 1% cap!

    Actually the net effect of the NI changes appears to be favourable to the low-paid.

  • Stephen Robinson 10th Dec '09 - 11:01am

    Herbert Brown: Vince Cable called for a flat-rate public sector pay rise – so everyone gets the same amount of extra cash per week. The freeze in the total bill would be achieved by reviewing salaries and pensions at the very top end of the scale.

  • Herbert Brown 10th Dec '09 - 1:29pm

    Stephen

    “Vince Cable called for a flat-rate public sector pay rise “

    The document I am thinking of called for no such thing. It proposed an overall freeze in public sector pay (it didn’t concern pensions). Certainly he said it might be possible for the pay of some groups to rise if the pay of other groups fell. But he didn’t say anything about safeguarding the low-paid at the expense of others, and he certainly did not propose a “a flat-rate public sector pay rise”.

  • Are you thinking of this?
    http://www.guardian.co.uk/politics/2009/sep/20/vincentcable-libdemconference

    Which goes on to say:
    “But Cable will say that his proposal would not lead to an across the board pay cut for all public sector workers. The Lib Dems would hope to protect, and even increase, salaries for lower-paid public sector workers by cutting the salaries of highly paid managers and by scrapping managerial jobs. The plan would only apply to the next round of pay deals; the party would honour existing deals.”

    I’d check your sources a bit more deeply. That seems like a call for an overall pay freeze in total budget terms but not applying to every worker.

  • Herbert Brown 10th Dec '09 - 3:32pm

    No, Hywel, it wasn’t a press report – it was Vince Cable’s pamphlet “Tackling the fiscal crisis”, which you can find here:
    http://libdems.org.uk/siteFiles/resources/PDF/Tackling%20the%20fiscal%20crisis.pdf

    Cable proposed a freeze in total public sector pay, precisely as I said. To be fair there are a couple of passing references to the low-paid in the relevant section – “There may well be many individuals who can make a pressing case for more, particularly those on low pay, but in aggregate terms pay discipline is unavoidable” and further on a reference to the need to accommodate “pressures from low-paid staff some of whom are on or around minimum wage levels”. But those vague references are as far as it goes.

    And to claim that Cable was calling for “a flat-rate public sector pay rise – so everyone gets the same amount of extra cash per week” is sheer fantasy. But curiously you don’t advise Stephen Robinson to check his sources!

  • Herbert Brown 10th Dec '09 - 3:52pm

    And, incidentally, in that document Cable was definite about freezing civil service pay:
    “In the case of the civil service specifically there should be a salary freeze for several years as well as an end to bonuses …”

    When you consider that – for example – in 2006 a quarter of civil servants earned less than £15,430, this concept of an indiscriminate pay freeze makes it very hard to believe that Vince Cable has any genuine concern for the low-paid.

  • “No, Hywel, it wasn’t a press report – it was Vince Cable’s pamphlet “Tackling the fiscal crisis”, which you can find here:”

    Thank you for extracting the relevant quotes which confirm the analysis in the Guardian report I quoted. And which in any case was explicitly presented as not party policy

  • Herbert Brown 10th Dec '09 - 6:22pm

    Hywel

    It isn’t a question of “analysis”, is it? Clearly the Guardian was reporting was Vince Cable had told them he was going to say in a speech.

    But please be honest. Do you really think it’s possible to reconcile a proposal for a salary freeze for the entire civil service, lasting “several years”, with an aspiration to “protect, and even increase, salaries for lower-paid public sector workers”?

  • Herbert Brown 10th Dec '09 - 7:56pm

    I repeat what I quoted above:
    “In the case of the civil service specifically there should be a salary freeze for several years as well as an end to bonuses …”

    A “salary freeze” means that salaries are fixed, doesn’t it?

  • Herbert Brown 13th Dec '09 - 3:17pm

    Stephen

    Thank you for the link to Vince Cable’s article, which I hadn’t seen.

    Obviously this is a quite different policy from the one he was advocating in September. I note that there is no mention of pay being frozen in that article – either individually or in total.

    As I said, in September Vince Cable was calling for total public sector pay to be fixed, and also calling for a salary freeze in the civil service, to last for several years. It’s all there in black and white in the document I linked to.

    I’m pleased to hear that those proposals have now been dropped, but I remain disconcerted by the timescale of weeks on which policy positions are still being adopted and then abandoned.

  • Herbert Brown 13th Dec '09 - 4:37pm

    Stephen

    I’m sorry, but he is clearly not advocating any kind of pay freeze for the public sector in that article. He is advocating a flat-rate increase in pay. Apparently he has dropped both the freeze in total public sector pay and the indefinite salary freeze for the civil service.

    It’s ridiculous to pretend that this is “a detail emerging after statement of broad principle back in September”. In September he was proposing the total wage bill should be frozen. Now he is advocating a rise of £400 per employee, which would imply a rise in the total wage bill of 1-2%.

  • Herbert Brown 13th Dec '09 - 6:38pm

    Stephen

    I’m sorry, but it’s simply fantasy to pretend that what Vince Cable proposed in September – in the document I linked to previously – is consistent with imposing a flat-rate £400 pay increase on the whole public sector.

    Just read it, and you’ll see that what he was suggesting was quite different. If that’s too much trouble, simply reflect that you can’t have a civil service pay freeze while increasing civil service salaries by £400 a year!

    Evidently those ideas were simply being floated then. Now they have been sunk. That in itself is to the good. But if only these processes of policy trial and error weren’t carried out quite so publicly … !

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