The battle for tax cuts

Twelve months ago, the prospect of all three main parties offering tax cuts was inconceivable. Now all three parties appear to be competing to offer tax cuts.

The Lib Dems have already set out their position, the Tories are due to report tomorrow and Labour are reported to be mulling over cuts too, with several 'sources' quoted in the Sunday papers.

The radical change has come about as the economy is in need of a fiscal stimulus to stave of the downturn. But more than that, public opinion seems to have changed. Obama and McCain both campaigned on manifestos promising tax cuts - Obama focussed on low and middle income earners, McCain was promising tax cuts for all, and it is now seen as a potential vote-winner.

Sentiment has moved on in the UK over the last twelve months and appears to have been driven by the inflationary squeeze on incomes. Families and individuals were finding that more and more of their income was being spent on food and fuel, and started looking around at where all of their money goes.

The 10p tax row helped to put tax back on to the agenda in a way that it hadn't been for years forcing a reversal by Gordon Brown. Poll after poll now suggest that a large majority of the public believe that local and central government 'waste' public money, and a quick glance at the TaxPayers' Alliance website would appear to confirm this, so there is an appetite for tax cuts.


The three parties, while all now supporting tax cuts, appear to differ in how to pay for this.

Lib Dem - cut taxes for low and middle incomes, levy more tax from high earners. Essentially, a redistributive move in taxes, but wouldn't provide a fiscal boost, unless the assumption is that those on low incomes will spend more of their money in the economy than the loss to the economy of the spending power of those on high incomes.

Labour - cut taxes and borrow more. This will provide a fiscal stimulus, but surely this is simply government spending on the never never. Borrowing will have to be repaid at some time, and taxes would have to rise in the future. This is a short-term move.

Conservative - cut taxes and finance this through reduced government spending. Appealing, although cutting public spending in a recession is going to be challenging. And it does bring about the charge that front-line public services will be 'hit'.


The challenge for the Tories is to find a way to reduce government spending, in a credible way, without impacting on public services. I look forward to their proposals due out tomorrow.