Tories pledge tax cuts
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.”
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.