The Staggers

The New Statesman’s rolling politics blog

Balls heightens the pressure on Osborne to cut taxes

Labour's new line: any tax cuts are better than no tax cuts.

By George Eaton Published 19 February 2012 10:51

With the Budget now just a month away, both Labour and the Lib Dems are finalising their wish lists for George Osborne. By far the most interesting intervention in today's papers is that of Ed Balls, who uses a column in the Sunday Times to put the case for tax cuts to stimulate the economy.

You'll be familiar with Balls's call for a temporary cut in VAT and a National Insurance tax break for small firms (both part of Labour's ubiquitous five point plan for jobs) but should these demands fall on deaf ears, the shadow chancellor has a plan B. If Osborne "can't bring himself to reverse his VAT mistake", he writes, he has other options. For the same amount of money, he could "cut the basic rate of income tax by 3p for a year. Or raise the income tax personal allowance to over £10,000. Or increase tax credits for almost 6 million working people by around £2,000." With the economy on the brink of a double-dip recession and unemployment heading towards three million, Balls rightly argues that some tax cuts are better than no tax cuts:

It would be better to cut VAT now - it's fairer and quicker and would help pensioners and others who don't pay income tax. But any substantial tax cuts to help households and stimulate the economy would be better than doing nothing.

By lending his weight to the Lib Dems' key demand - an accelerated increase in the personal allowance - Labour's Keynesian rottweiler heightens the pressure on Osborne to offer some relief. From his time as shadow chancellor onwards, Osborne has always opposed what he calls "unfunded tax cuts". But many Tory MPs, sharing Arthur Laffer's belief that tax cuts are self-financing, would like him to do nothing more than reduce the burden. And with the Chancellor likely to undershoot the OBR's deficit forecast of £127bn by around £3bn, he will find it harder to argue that any giveaway would be fiscally irresponsible. The Institute for Fiscal Studies, for instance, has said that Osborne could cut taxes by £10bn without triggering a bond market revolt and a rise in interest rates.

As Tory MP David Ruffley said of a temporary VAT cut:

Even if we can't find the money for tax cuts from public spending savings, we could add it to the deficit and it is not going to send the markets into a tizzy, I don't think anyone really believes that. The markets will not go haywire if there was a modest loosening in borrowing in the short run if it was for the right reason.

The Chancellor, an inveterate political schemer, will no doubt have something up his sleeve but with Labour, the Lib Dems and his own MPs all urging him to slash taxes it had better be something special.

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Tags: Ed Balls

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24 comments

Sun, 2012-02-19 21:06 — Mrs.Josephine Hyde-Hartley (not verified)

If other Europeans can wonder whether to bring about a so-called Tobin tax why can't we abolish VAT here in the UK and instead replace it with a windows tax ( ie all windows, tangible or intangible..you know what I mean - real, glass or otherwise.)

Mon, 2012-02-20 11:46 — Robert Taggart

Balls - political pressure - on matters economic - with his record ?
YOU COULD NOT MAKE IT UP !

Mon, 2012-02-20 12:35 — Awake!

Robert taggart
HAHAHAHAAHAHAHAHA, agreed... It does show the extent to which Eaton is disconnected from reality as well

Thu, 2012-02-23 14:54 — Ian (not verified)

Not impressed with Ed Balls's tax cutting agenda which whiffs of short term opportunism rather than any rational thought out strategy for economic revival. Sounds like a man from the last century trying to steal Nigel Lawson's agenda.

Sun, 2012-02-19 10:59 — Shinsei67

I thought "we" all wanted to rebalance the UK economy away from consumption (especially on imported products)and towards investment, production, exports and infrastructure.

A VAT cut is completely the wrong tax cut. If taxes are to be cut they should be cut on productive and investment activities and not on consumption.

Sun, 2012-02-19 10:59 — Livers (not verified)

"The Chancellor, an inveterate political schemer, will no doubt have something up his sleeve"

The real disgrace will be the political nature of whatever he pulls out of the hat.

You can bet it won't neccessarily be "in the nation's interest" but almost certainly will be "in the Tory parties interest".

I hear Treasury officials are concerned he spends more time plotting Tory strategy than managing the economy....

Sun, 2012-02-19 11:43 — Dickie1

"....we could add it to the deficit and it is not going to send the markets into a tizzy, I don't think anyone really believes that. The markets will not go haywire if there was a modest loosening in borrowing in the short run if it was for the right reason."

Hahhhahahh

No more pretending, this is:

THE END OF TORY FISCAL RESPONSIBILITY.

What a total farce the idiotic government is.

Sun, 2012-02-19 12:01 — mcquade

Livers has been reading the Heffer column in the Mail.

Sun, 2012-02-19 13:10 — Shinsei67

"You can bet it won't neccessarily be "in the nation's interest" but almost certainly will be "in the Tory parties interest"."

Surely the only chance the Tory party has of winning the 2015 election is if the economy is in reasonable good shape.

So why would Osborne propose anything that wouldn't benefit the economy overall ? Or rather that was intended to help the overall economy.

Sun, 2012-02-19 14:01 — Livers (not verified)

@McQuade

Nope. I wouldn't read that hateful rag if you paid me.

Sun, 2012-02-19 14:09 — Livers (not verified)

@Shinsei67

You'd have thought that wouldn't you?

Bit it doesn't explain the NHS disaster. It doesn't explain Vickers kicked into long grass either.

But then look at their funding... ah yes, follow the money. With Tories its always about money.

There are choices to be made and vested interests always shine through.

I would be amazed if he has the chutzpah to go after the 50% rate though. But who knows?

Sun, 2012-02-19 14:34 — Shinsei67

"Vickers kicked into long grass either."

Vickers hasn't been kicked into the long grass. It is being fully implemented and to the timetable recommended by the Vickers Commission.

I agree that the NHS "reforms" are a disaster but when initiated they were intended to be beneficial - and did have the support of the LDs and much of the medical profession.

Sun, 2012-02-19 14:52 — Livers (not verified)

@Shinsei

NO. Legislation to implement Vickers will be passed "by 2015". The 2019 deadline for splitting "retail" and "investment" banking is already at risk.

Why not legislate now?

Oh .. kick it into the long-grass ans say 'the whole of the report is accpeted in full' but lets wait until the last possible minute to do it.

Meanwhile, Welfare reforms are being forced through the Lords and the most unpopular bill since even before the Poll tax is also being forced through.

Like I said, there are choices to be made.

Sun, 2012-02-19 14:58 — Shinsei67

@Livers:
"
NO. Legislation to implement Vickers will be passed "by 2015"."

The most significant financial restructuring in a generation and you think it can pass through the entire Parliamentary process in a matter of weeks ?

There's plenty of the Vickers recommendations ALREADY implemented and plenty currently being enacted.

The 2019 deadline is for the ENTIRE process to be completed. A deadline set by Vickers, not the government.

It quite clearly hasn't been kicked into the long grass and if you think it has then you evidently haven't the slightest idea about what is happening with financial & bank legislation and restructuring.

Sun, 2012-02-19 16:37 — Marco (not verified)

Please never let this man near Gov EVER again.

He just hasn't got a clue - what tory wouldn't want to cut taxes? But we CAN'T do it now without impairing the fragile finances.

Labour are clueless.

Sun, 2012-02-19 16:42 — Luddite (not verified)

The last thing that's needs cutting it VAT. What would that do? Suck-in imports from China... Stupid.. Cut business rates, corporation tax. Cut income-tax for the lowed paid.

Sun, 2012-02-19 16:51 — Livers (not verified)

@Shinsei67

We all know that Lloyds are splitting, selling off the shit bits. Good for them.

By comparison, I hear Barclays are still consolidating IT and related infrastructure, creating a nice little pickle for disintegration.

And the rest? They will wait till legislation is enacted before they start bleating "its going to take us 10 years to disintegrate our operations and IT"

I do not expect legislation to take a matter of weeks (strawman) -- but I expect it to be given a timeline shorter than "by 2015" i.e. not completed before this lot are out the door (how very convenient).

Sun, 2012-02-19 16:57 — Marco (not verified)

On Tuesday figures are likely to show we have borrowed 120bn - 7bn less that projected for the 11/12 financial year. This is during a period of tough fiscal austerity and the eurozone crisis, things are slowly picking up so hopefully the deficit will continue to undershoot.

Osborne is doing a terrific job - don't let this mug anywhere near the finances.

Sun, 2012-02-19 17:33 — Matt Thompson (not verified)

We need to cut fuel duty and corporation tax and also raise the personal allowence.

We need to help the lower paid workers as well as creating incentives to invest. Fuel tax cuts will help everyone, businesses and hard working people alike.

Sun, 2012-02-19 17:45 — test (not verified)

"And with the Chancellor likely to undershoot the OBR's deficit forecast of £127bn by around £3bn, he will find it harder to argue that any giveaway would be fiscally irresponsible."

Oh, a deficit of only £124m. That's OK then. As Ruffley says we can simply "add tax cuts to the deficit".

Do you or Ruffley know or understand the difference between deficit and debt?

Sun, 2012-02-19 18:38 — Dickie1

@ test "...the difference between deficit and debt?"

Are they the same thing? I know there is a difference between 'doing a splendid job' and 'being reckless': the one is the accumulation of debt by the Conservatives. This is the great, shining British debt that is a tiny bit smaller than expectations. The other is dirty, commie, leftist debt. Or if it isn't that, then it is someone else's fault.

Sun, 2012-02-19 18:50 — Eddy S (not verified)

increasing tax free thresholds is way better than tax credits !!!

i know family who know how to play the tax credit game in there 'businesses' - the tax credits just finance the kids private education.

whereas the tax free threshold will help the genuine hard workers and squeezed middle.

Sun, 2012-02-19 18:51 — Fraziel1

He needs to do something to restore confidence and get people spending.raising the tax threshold to 10k would be a great start and would add some much needed cash into the pockets of low and middle earners.

Sun, 2012-02-19 19:34 — Indu Pendent (not verified)

We should follow Denmark and raise VAT. It is a lawful tarrif on imports and is progressive when supported by compensatory support for the most vulnerable.

The money raised could be used to raise personal allowances to £10k.

Thought Balls was all about raising NI to tax jobs? Cant keep up with Labour, policy changes in the wind.