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  1. Business
  2. Economics
29 March 2010

Osborne’s tax cut means more pain elsewhere

IFS says Tory shadow chancellor's new pledge means spending cuts or tax rises elsewhere.

By George Eaton

George Osborne’s promise to reverse part of Labour’s planned £7bn increase in National Insurance is being hailed by the right as a game-changer to match his 2007 pledge to slash inheritance tax.

The Tory shadow chancellor insists that the plan will be funded through “efficiency savings” of £12bn, of which £6bn will go towards the NI cut, meaning that the Tories can still reduce the deficit faster than Labour.

But here is the verdict of the Institute for Fiscal Studies:

The Conservatives claim that the spending cuts can, in effect, be rendered painless by efficiency savings that they say their advisers have identified. Whether or not that is true, using the bulk of these spending cuts to finance the NI cut means that they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by. Reducing the deficit more quickly than the government plans to will therefore require even greater cuts to public services spending, or to greater reliance on welfare cuts or tax increases that might be as economically costly as the NI increases they are seeking to mitigate.

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It’s hard to see how Osborne can pull this one off without reverting to the old Tory strategy of raising VAT, the most regressive tax of all, or by introducing just the sort of “swingeing cuts” that David Cameron has worked to distance his party from.

The Tories’ promise to cut taxation, cut unemployment and cut the deficit just isn’t credible after this latest announcement.

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