Tuesday, 16 September 2008

Can we cut taxes? And if so, how?

Over on Lib Dem Voice, yesterday's debate on Make It Happen has led to some discussion about the desirability of cutting taxes and how this should be done.

Much of the discussion has centred around just how any tax cuts should be carried out. Some people have assumed that the party would want to cut income tax rates even further than we already are, ie we'd want to cut the rate from 20p to 15p rather than the 16p basic rate we're currently proposing. Others have suggested that raising the personal allowance would be the way forward.

Well, in a question and answer session on the economy just now, Vince Cable was asked directly about whether in terms of helping poorer people the party would want to cut the basic rate of income tax even further, raise the personal allowance or reintroduce the 10p rate of tax which Gordon Brown abolished. Vince acknowledged that there was a debate to be had about the best means of achieving our goals, but both he and fellow Treasury spokesman Jeremy Browne said that the simplest and most direct way of helping poorer people would be to raise the personal allowance. I would expect that would be the direction that Vince and the wider party would be most likely to want to go.

But there is a wider question about whether cutting spending and taxation overall is achievable in the current economic climate, an issue I highlighted myself yesterday. Vince was also asked about this in the Q&A session. He noted firstly that public borrowing is expected to spiral even higher when the Government introduces its pre-Budget statement in a few weeks time. He also recalled the experience of Ramsay MacDonald's coalition government in the 1930s, which raised taxes and cut spending during a downturn, and only served to make the recession worse.

That indicates to me that Vince is not going to be hellbent on cutting spending, and will only do so if it is economically wise. But that might in turn mean that cutting spending and therefore taxes overall might not be achievable for a while until the economic mess that Gordon Brown's pathetic excuse for a government is floundering in is actually sorted out.

Can we cut taxes? Maybe, but it could be a long process.

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