Thursday, October 16, 2008

Can the Lib Dems still promise tax cuts?

Ever since Make it Happen was passed by the Liberal Democrat Conference last month, Nick Clegg has been calling for tax cuts. But that document was drawn up in a very different economic climate, and we have to ask today whether calling for tax cuts is wise or credible.

The collapse of the banking system and increasing unemployment are going to put growing pressure on public finances. How are we going to be able to cut taxes in such circumstances? It is likely that, whichever party is in power, the government will have to increase taxes to balance the books.

At the very least, we need to identify those public spending cuts which will be popular and harm no one. I would like to know what they are. An obvious example would be scrapping identity cards and their accompanying database, but that money has already been tagged for extra spending on policing.

8 comments:

wit and wisdom said...

Or increase expenditure and run up a bigger deficit while in times of recession, make the proposed budget savings to minimise the extent of this exposure and reduce taxes for as many people as possible to encourage them to consume as much as possible to help the economy to grow.

Nickers is on exactly the right path, especially as this approach completely wrong-foots the Tories.

Frank H Little said...

Isn't it remarkable that the Labour government built up the Department of Work and Pensions, including the superfluous Job Centre Plus programmes, in a time of full employment and is now cutting back on job centres and staff as we are entering recession?

Anonymous said...

But Wit and Wisdom, at a time of deep recession most people won't spend extra money, they'll save it. The only way government can stimulate the economy is by direct expenditure on its own account. Tax cuts should be reserved for the lowest income groups to minimize hardship. Offering tax cuts to the middle classes is not only futile in practice, it won't be believed anyway, so it's also futile as policy I'm afraid.

Bernard Salmon said...

Even before the current financial crisis, the projected budget deficit was such that I thought cutting taxes overall would be very difficult. And with the situation now worse, it will be almost impossible to achieve over a single parliament.

wit and wisdom said...

As John Maynard Keynes and Franklin Roosevelt both understood, you have to spend your way out of a recession. and then cut your cloth when the economy is back on its feet. Sure, some people will save money if their taxes are reduced but many will not. A large amount of the newly freed up money will start to sweill around the economy once more.

The tax cutting policy remains attractive, sound and liberal.

Anonymous said...

I still say that dropping money from helicopters is little use if people just bury the notes in the ground.

wit and wisdom said...

which fails to address the key point I made, which is thaty some people will do this, others won't. They will want the plasma screen for Christmas. Or the new bike. Or that car they've been saving for.

We're dumb animals: we like shiny new things!

dreamingspire said...

Clegg is a bit behind, because inflation is going to fall fast and we will soon get used to the 10% higher basic cost of living plateau. Vince I think it is that wants the basic personal allowance raised so as to take lots of lower paid people (and pensioners) out of paying income tax. More of the eastern European immigrants will go home so that there will be jobs available. That is all part of the way to take us forward to a simpler situation, one where we are more comfortable in being British. Tackling unemployment will still, however, be necessary, and that does need both public spending and increasing the skills in the public sector - invest in training, take the opportunity to bring the Victorian parts of the public sector up to date (vested interest: friends of mine run a training business that has demonstrated the effectiveness of training in the public sector, and I have done a little myself - the recipients really appreciate it, and it gives them increased confidence).