Articles

Category: Government

11 July 2011

The 15p Chancellor? How Osborne could outflank Labour on tax

Gavin Kelly

fter a year in power, in the aftermath of a traumatic recession and with unemployment still riding high, the Chancellor needs not only to deal with the immediate economic predicament but also to chart a course to the next election. Economic and political cycles need to be aligned. It is already a commonplace in Westminster that this means tax cuts down the road, though no one knows what form they will take. The Chancellor's first thoughts have already been slipped to the PM in a secret memo.

At least that's how it was for Nigel Lawson back in 1984 --- and today, George Osborne faces a similar challenge. Can a highly ambitious but boxed-in chancellor drag the centre of political gravity rightwards - above all on the touchpaper issue of tax -- and, in so doing, win the next election on Conservative terms?

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Think the cuts are biting? The pain has hardly begun, Independent

Gavin Kelly

Analysis: The most politically dangerous cut will kick in in 2013 - the abolition of child benefit for higher-rate taxpayers

Buoyed by a run of bank holidays and balmy weather, optimistic families may think that, having absorbed the changes announced in April's Budget, the worst is behind them. Sadly, that is a false hope. Plenty more pain is in the pipeline.

To see why, just look at what is coming in terms of cuts, wages, and interest rates. The cuts that kicked in on "Worse-off Wednesday" accounted for a mere 10 per cent of the total savings arising before 2015 from changes to tax credits and child benefit. The pain is "back-loaded"; over 40 per cent of these cuts kick in in 2013.

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Trouble ahead at the Treasury, New Statesman

Gavin Kelly

For many politicians, tax cuts are the elixir of politics. In times of plenty they are deployed triumphantly as evidence of a thriving economy; in times of hardship they are handed down by chancellors as a salve to a hard-pressed public. So it should come as no surprise that, even in this parliament - dominated as it has been by arguments about fiscal austerity, tax rises and lower spending - there will be a growing debate about which taxes to cut.

Political gravity will ensure this is the case. As the economy gradually recovers - at the same time as the pain of the deepest and longest wage squeeze in living memory maintains its grip on family bank balances - politicians will be desperate to offer hope of better times ahead. They will know that tax cuts won't solve the structural problem of stagnant wages, nor will they deal with the rising pressures on the cost of living. And there will still be sharply differing views about whether tax cuts for some mean tax rises for others, as opposed to further cuts to spending. But have no doubt: all party leaders will be forced to offer respite to a public whose anger about falling living standards will reach boiling point over the next few years.

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If you liked this why don't you listen to Gavin Kelly on BBC Radio 4's Week in Westminster?

Welfare: thinking the thinkable, Public Finance

Welfare reform is crucial to the coalition’s agenda. But ministers’ plans are driven by cuts rather than consistent principles, while Labour seems out of touch, write Gavin Kelly and Nick Pearce in Public Finance.

Almost every significant reform of the welfare state is heralded as Beveridgian in scope and ambition. But the reality rarely matches the lofty rhetoric. The latest attempt – Iain Duncan Smith’s plan for a Universal Credit – is certainly bold. It bears the imprint of a politician who has thought hard about welfare reform, and is determined to drive it through.

But the great misfortune for the work and pensions secretary is that his flagship reform will be outweighed by a broader set of measures being pursued by the coalition government. It is this disparate set of policies – as much as Duncan Smith’s claim to a grand plan – that look set to fundamentally alter the complexion of the welfare state.

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