News from British and Canadian Conservatives

Tuesday, May 13, 2008

Another tax con, not a tax cut

Today, the Chancellor of the Exchequer has bowed to growing pressure, from within his own party and without, to alleviate the suffering imposed on the low paid by the recent increase in the starting rate of income tax. The abolition of the 10p rate, allowing the basic rate to be cut by 2p to 20p, was announced in PM Gordon Brown's final budget as Chancellor. It had the hidden effect of pushing 5.3 million low paid workers into the 20p band, effectively doubling their income tax bills. The losers included many part-time and semi-retired workers.

Today's move comes in the wake of last week's electoral meltdown in the London, Welsh and English local elections, criticism from the Conservative Shadow Cabinet as well as calls for a confidence vote by Labour backbenchers led by Frank Field. Next week, Labour is facing a tough by-election as it seeks to hold onto the Crewe and Nantwich seat vacated by the death of long-serving Labour MP, Gwyneth Dunwoody.

The measures announced today can be seen as little more than a bribe to the electors of Crewe and Nantwich. Alistair Darling announced his proposals to the House of Commons, in his 10th emergency statement in the 11 months since he became Chancellor of the Exchequer. The plan is to raise the threshold at which the Basic Rate of income tax becomes payable by £600. That means that almost everyone who pays the basic rate of income tax will be given £120 (£60 in September then £10 per month for the rest of the year). However, it seems that the rebate only applies to this year - so we'll all be paying more again next year.

It offsets some of the damage caused by the increase in income tax - although 1.1 million low paid workers still won't be fully compensated this year. There is still no guarantee that all 5.3 million won't be out of pocket again from next year onwards.

Where's the money coming from?

Labour has turned to it's normal source of funds to pay for the £2,700,000,000 cut in tax revenue. They haven't raised tax from elsewhere. They haven't cut expenditure to fit the new levels of income. No, once again UK plc will be bailed out by the banks. An extra £2,700,000,000 in borrowing to pay for a dodgy back of an envelope tax cut.

It's not as if the economy is awash with money to lend. Hasn't the Chancellor heard of the Credit Crunch? Northern Rock's collapse and nationalistion? The banks tapping sharholders for funds to shore up their balance sheets? On the day that inflation shot up to 4.2%, at a time of economic instability, when monetary policy is already being pulled in two directions at once, the Chancellor confused the picture further with an act of fiscal stupidity.

Let us not forget that today's borrowing is tomorrow's tax rise or spending cut Increased borrowing is the stealthiest tax rise of them all. The Chancellor has chosen to eat his cake, but there's nothing left in the kitty to deal with the dark economic days ahead.

Watch the announcement in full (BBC).

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