“We seem to be entering a political price war”, with the three main parties trying to outdo one another on tax cuts, says Rachel Sylvester in The Times. Gordon Brown has hinted at limited cuts in this month’s Pre-Budget Report, on top of his accelerated programme of public works. These may include extending the £2.7bn compensation for those who lost out from the abolition of the 10p tax band, and postponing planned rises in road taxes for gas-guzzlers. Brown’s £15bn reflationary package will reportedly be funded at a later stage by tax rises.
The Liberal Democrats have promised cuts in the basic tax rate to help lower- and middle-income households. These would be paid for by abolishing council tax, increasing taxes on polluters, those who make big capital gains and those on higher incomes who save in private pensions, says Robert Chote in The Daily Telegraph. And the Tories have proposed a temporary £2,500 cut in NI contributions (NICs) for employers that hire people who have been on the dole. The key difference, says Sylvester, is that Labour believes in increasing the national debt to pay for emergency measures, while the Tories’ ‘housewife’ strategy is based on the belief that spending must be paid for by savings.
Bonkers as their plans are, we don’t need to worry about the Lib Dems – they don’t stand a chance of winning an election, says Simon Heffer in The Daily Telegraph. Labour’s plans for yet more borrowing when we’re “hideously” in debt, and the Tories “wheeze” on NICs are even more idiotic. Paying a £2,500 bribe to take someone off the dole, where they’re costing taxpayers £8,000, may sound like a bargain, but employers aren’t going to hire – bribe or no bribe – if no one is buying their products. The imperative is to stimulate demand; the obvious way of doing that is to cut spending on unproductive sectors and transfer it to productive ones. That means scaling back the public sector and using some of the money saved for immediate tax cuts. It is cheaper to take someone off the public payroll and pay them the dole. Yet no party dare use the ‘c’ word (cuts) in the context of the public sector.
In principle, Brown’s vision of an internationally coordinated ‘fiscal stimulus’ (tax cuts or higher public spending) is “sensible”, says Sam Fleming in the Daily Mail. First, trying to balance the budget rather than opening the “budgetary spigots” is a bad idea – Hoover tried to do it in the US eight decades ago and it led to the Great Depression. But unless he wants the “pound to tank”, Brown will also have to chart a path back to that “long-forgotten state of fiscal prudence”, one that is credible in the eyes of the financial market, which is where the Government has to raise the cash.
So far, the market doesn’t seem convinced, says Jeremy Warner in The Independent. Inflows of foreign capital into UK fixed-income instruments reversed sharply in September, helping to explain the weakening of the pound. Add Brown’s reflationary package to our ballooning budget deficit and pricey bank bailouts, and foreigners are likely to continue repatriating their money. “At the very least the Government may have to get used to paying a lot more for its money.” And at some stage, taxpayers will be footing the bill via higher taxes. Whatever the Government decides in the coming days, “we will be paying for this mess well into the next decade”.