Cut VAT, not 50p tax rate, says Ed Balls

Shadow chancellor says economists arguing for end to 50p tax band are ‘not living in the real world’ Ed Balls, the shadow chancellor, has accused economists arguing for the abolition of the 50p tax rate of “not living in the real world”. Balls insisted the tax cut priority to should be a temporary reduction in VAT to boost consumer confidence, rather than a break for top earners, which he said would be “unfair” in the current climate. The shadow chancellor made his comments a day after a group of leading economists used an article in the Financial Times to urge the chancellor, George Osborne, to scrap the 50p tax rate at the earliest opportunity. The group said the UK needed to return to an “internationally competitive tax regime” to stimulate the stuttering economy. The economists claimed the 50p rate “is clearly a self-defeating way for the Treasury to raise the money and a reduction in tax avoidance would be more effective”. But Balls said cutting the tax for the highest earners, which “raises billions of pounds”, should not be “the first priority”. “Do you really think, when we need to get the economy moving, do you really think the first priority is not to cut VAT for families or find other ways to help families on middle incomes but to only cut to taxes for people on incomes over £150,000?” asked Balls. “I think people watching these economists yesterday making these arguments must think these people are not in the real world.” He said while taxes should be fair “and as low as possible”, the deficit had to be kept under control and this meant “everybody” had to make a contribution. He added: “George Osborne, if he wants a plan B should listen to wiser advice than that.” But his arguments were countered by Kitty Ussher, Labour’s former Treasury minister, who used an article in the Wall Street Journal to argue that Labour should be “brave enough” to commit itself to ditching the top rate of tax in the future to avoid looking “all 1970s-ideological”, and focus on some other “truly progressive measures” to address the deficit instead. She argues that the revenue from the top rate of tax will have “no meaningful impact on the size of the government deficit, simply because of the magnitude of the sums involved” and that its importance lies in its “totemic nature”. Ussher claimed one of the reasons Labour introduced it in the 2009 budget was “because there were some Labour politicians that liked putting up income taxes on top earners as a point of principle, regardless of the economic cycle”. Ussher wrote in WSJ: “Were the Labour party to say now that it intends to abolish the tax in the future, it would be hugely to opposition leader Ed Miliband’s advantage. It would project him beyond the populist into the realm of the serious. And it would stop him from looking all 1970s-ideological if the chancellor’s own official review subsequently showed that the tax didn’t raise any money.” Cameron will try to defuse the row over withdrawing the 50p tax rate on those earning £150,000 or more by waiting for the outcome of a review commissioned by the chancellor into whether the tax is bringing in the expected revenue. The review is unlikely to amass sufficient data in time for the spring 2012 budget. Downing Street confirmed that the priority set out in the coalition agreement was to increase personal allowances for the lowest-paid over the parliament – a key Liberal Democrat commitment. But in a sign of tensions between the coalition partners over tax policy, the Tory communities secretary, Eric Pickles, broke ranks by saying he thought the 50p rate was probably doing more harm than good. Pickles told the BBC: “I think there is a strong and reasonable case to say, ‘Come on, this is not actually contributing very much.’ On balance, it’s probably doing more damage than it’s doing good.” He said the top rate should be “got rid of” but stressed the timing was up to Osborne. It emerged on Thursday that the government may bring forward a proposed increase in personal allowances to help boost the economy. A Downing Street aide told the Daily Express there was “a serious case for accelerating” the introduction of the policy, which the newspaper said would be worth up to £400 a year for low- and middle-income earners. Responding to the reports, Balls told BBC Breakfast: “If you really want to get spending and purchasing power into the economy quickly, rather than doing it through personal allowances, which tends to be a bit diffuse, better to have a temporary cut in VAT because a cut in VAT puts money into people’s pockets straight away. It will have more of an impact upon the economy.” The shadow chancellor also used the round of interviews to urge Osborne to lead the way on a “global plan B” for tackling the fragile economies in America, the eurozone and Britain, rather than “ploughing on regardless”. Osborne insisted on Tuesday that the government would stick to its austerity plans , despite admitting the long-term damage caused to the economy by the credit crunch was forcing him to revise down estimates for growth that were already weak. Balls told BBC Radio 4′s Today programme Osborne and Cameron were “uniquely placed” to make the argument on the international stage, citing the lack of political consensus both in the eurozone and America on the way ahead. “The irony is that the one country which has the political strength to change course is Britain and to make their argument in the world,” Balls said. “The problem is it’s almost the opposite problem: our coalition has decided the cornerstone is sticking to a deficit reduction plan which isn’t working, has flatlined our economy. “Our problem is we can’t argue for sanity in the eurozone and America if we are sticking to a failing policy in Britain. That’s why George Osborne having a plan B in Britain is necessary for him to make the global argument. We desperately need leadership in these times.” Ed Balls Income tax Tax Tax and spending Economic policy Economics Global economy Economic growth (GDP) Green shoots George Osborne Hélène Mulholland guardian.co.uk

Posted by on September 8, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.