Tories pledge tax cuts

Tax files

David Cameron has unveiled tax cut plans that he says will create employment and boost the economy.

The measures come ahead of the government’s pre-Budget report, which is believed to also include measures to reduce the tax burden on businesses and some lower income households.

The Conservative Party’s measures will see employers given National Insurance (NI) breaks in return for hiring someone who has been claiming unemployment benefits for more than three months. For every person taken on to work 30 hours a week or more, the company would receive credit worth £2,500 for 12 months.

Despite concerns that tax breaks would interfere with government plans to increase public spending, the Tories says the scheme would be revenue neutral as the credit would otherwise have been spent on welfare payments

And any fears of such a scheme being abused have been dismissed by the Party; to prevent companies making people redundant in order to replace them, the payments will only be available to companies that had made no redundancies in the previous three months, or for three months after claiming the credit.

In addition, companies will only be eligible for the tax cut to a maximum of 20% of their workforce.

Cameron says: “Britain’s economy is in crisis. Far too many jobs, businesses and livelihoods are at risk, and it is clear that we cannot rely on Gordon Brown to produce the positive policies that will help us cope with recession. Change is desperately needed.”

But, during his monthly press conference, Brown slammed the initiative as "confused and ill thought out".

"This is not going to address the real problem, which is wider than one small initiative," he added.  

Pre-Budget report 2008

Meanwhile, alternative tax cuts could be in the pipeline as chancellor Alistair Darling prepares his pre-Budget report.

Anxious not to be trumped by the Tories, the government is expected to announce its own series of tax cuts that will reduce the financial burden on people and enable them to put more money back into the economy.

According to Saturday’s Financial Times, ministers and Treasury officials are currently looking at a range of emergency tax measures as well as plans to increase public spending. The measures are expected to be aimed at lower-earning households and those receiving tax credits.

Speaking to GMTV on Monday 10 November, Gordon Brown said he was looking at everything that could help people weather the downturn. He also hinted that tax cuts could feature in the pre-Budget report, which could be delivered “in the next few days”.

The Centre for Economics and Business Research (cebr) says that an immediate 5% cut in VAT is needed to help bolster the economy.

Douglas McWilliams, chief executive of the cebr, says: “What is needed now is an early and possibly temporary tax cut. A reduction in VAT at least until the end of 2009 to 12.5% would be a good start.”

Last week the Bank of England’s Monetary Policy Committee cut interest rates by a dramatic 1.5% to 3%. Although the move was largely welcomed as a means to help hard-pressed homeowners, economists pointed out the larger-than-expected cut indicates the severity of the situation.

And George Osborne, shadow chancellor for the Conservative Party, said: “This is a shot in the arm for the economy, but it shows how sick the patient is.

“As we have argued, reducing interest rates is the best way to fight the recession and so we welcome the Bank of England’s decision. But the size of the cut means that the Bank recognises the UK economy is in serious trouble.”