Just one thing: cut the basic rate

The Fabian Society tells George Osborne what it wants to hear in the 2012 Budget.

The Fabian Society tells George Osborne what it wants to hear in the 2012 Budget.

George Osborne has to get real about the 50p tax cut. The real challenge facing this country is a growth challenge. It's not caused by a lack of entrepreneurship or of high-earner spending (though I have serious doubts about whether a top rate tax cut would solve either of these phantom problems), but by a crisis of demand in the British economy.

Far more sensible would be a temporary cut in the basic rate of income tax. Increasing the personal allowance, the concession on which the Liberal Democrats have staked their reputation, is a bad way to help low earners (its effects will be outweighed for many by the changes being implemented to tax credits). It's also hard to roll back once the need for stimulus has passed. Far better to protect tax credits, leave the allowance where it is and have a short, sharp cut to the basic rate. This would put money back into the pockets of large numbers of people and stimulate spending at a time when many still face either wage freezes or real terms wage cuts.

This is not an easy option. Cutting the basic rate of income tax would be expensive and would need to be clawed back from higher-earners, preferably through taxation on wealth not income. But with the economy sluggish and unemployment rising, it is a bold, confidence-boosting measure which could deliver the jump-start the economy really needs.

Andrew Harrop is the General Secretary of the Fabian Society

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