KHOODEELAAR! updating the evidence of Gordon Brown's unwise propensity to descent into a debts hole.....[237]

This page was last edited at 1255 GMT London Monday 10 November 2008



KHOODEELAAR! updating the evidence of Gordon Brown's unwise propensity to descent into a debts hole.....[237]

BBC political editor's blog referring to tax cuts and Brown's abandonment of Prudence

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Nick Robinson's Newslog

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Talking tax cuts
Nick10 Nov 08, 10:32 AM
So, everyone appears to agree. The recession's going to be much worse than originally feared. Borrowing's high and going to get much higher. There is, therefore, no money to spend. So, now's the time to spend money on cutting taxes making sure that there's even less money in the exchequer.
Hold on a second. How can this possibly be?
The answer is that politicians and economists are all asking themselves the same big question - what if big interest rate cuts don't get the economy moving again? What, in other words, if the central banks prove to be impotent in the face of the looming crisis? Then, the argument goes, it would fall to governments to act. In the jargon, if a monetary stimulus fails they will have to try a fiscal stimulus.
Now, if you're looking to stimulate a failing economy you're not talking about the sort of figures that are normally bandied about on Budget Day - the odd couple of billion here or there. Economists talk, instead, of spending one or two per cent of national income. Now, one per cent of British GDP is about £15bn. That's where the talk of tax cuts on that scale has come from but that's all it is, so far at least. Talk.
It is, however, talk that Gordon Brown's fuelling. This morning on GMTV he said:
"What I am determined to do is to get all countries round the world trying to get their economies moving again and one way you can do that is by putting more money into the economy by tax cuts or by public spending rises. But that's something that we've got to look at in the next few weeks."
As I've written before, it is still far from clear whether he is simply trying to put a better gloss on the dreadful borrowing figures which the chancellor will have to unveil soon or whether he's seriously contemplating borrowing much more than he's forced to in order to stimulate the economy. Bear in mind that if ministers did nothing in the forthcoming Pre-Budget Report taxes would actually rise - the £2.7bn rise in tax allowances to end the 10p tax fiasco was funded for one year only and the controversial car tax (VED) reforms are looming.
Meantime, the Tories are on the brink of unveiling a tax cut which, they say, will help keep people in work. This is the same party that was only recently saying that "the cupboard is bare" and which boasted that they wouldn't promise tax cuts they couldn't afford. In the FT today, the shadow chancellor insists that they've not shifted their position arguing that "Spending our way out of recession will not work. Targeted tax cuts would help but they must be properly funded". Until we see the colour of their money it's hard to assess how different their ideas really are.
The Lib Dems are the only ones who've consistently proposed major tax cuts for some time (though they're paid for by their tax increases) They propose to cut the basic rate of income tax from 20p to 16p with the £18bn cost being paid for, they claim, by closing tax loopholes for the rich and increases in green taxes. They, like the Tories, argue that tax cuts should not be paid for by extra borrowing.
So, there may be agreement on the need for tax cuts to help stimulate the economy but there is none on the type, the scale or how they should be funded.
Some countries have, of course, already unveiled stimulus packages. The Australian government, for example, recently pledged to spend 10bn Australian dollars - estimated to be just under 1% of their GDP. In stark contrast with Britain, however, they're had budget surpluses for the past decade.

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