This article is from the source 'bbc' and was first published or seen on . It will not be checked again for changes.

You can find the current article at its original source at http://news.bbc.co.uk/go/rss/-/1/hi/uk_politics/7745340.stm

The article has changed 9 times. There is an RSS feed of changes available.

Version 7 Version 8
We must act now on tax - Brown Darling unveils borrowing gamble
(about 14 hours later)
Borrowing billions to cut taxes is the only way to prevent a long lasting recession, Gordon Brown has said. Chancellor Alistair Darling has cut VAT but taken borrowing to record levels in moves he says are needed to save the UK from a deep and long-lasting recession.
Unveiling a major shift in Labour's economic policy, the PM said: "Extraordinary times require extraordinary action." Top earners also face more tax and all National Insurance contributions will rise, he said in his pre-Budget report.
The pre-Budget report at 1530 GMT is set to include a cut in VAT from 17.5% to 15% - paid for in part by a new 45% tax rate on earnings over £150,000. Mr Darling said "exceptional measures" were needed with the economy set to shrink next year - but the Tories said he had "mortgaged" Britain's future.
The Tories warn it might not work and will create a future "tax bombshell". Alcohol, tobacco and petrol duty rises to offset the 17.5% to 15% VAT cut.
WHAT IS EXPECTED VAT: Temporary 2.5 percentage point cutIncome tax: 5p increase for top earners after next electionVehicle excise duty: Postpone planned increase10p tax rebate: Extend for another yearCorporation tax: Next rise postponed href="/1/hi/uk_politics/7740897.stm">Live text: Pre-Budget report href="http://newsforums.bbc.co.uk/nol/thread.jspa?forumID=5701&edition=1">What would you like to see? KEY POINTS VAT cut by 2.5 percentage points45% tax rate on earnings over £150,000 from 2011All National Insurance to go up by 0.5% from 2011Economy to shrink by up to 1.25% next yearBorrowing to hit record £118bnPublic spending growth cut to 1.2%Phased increase in vehicle excise duty£60 Christmas gift for pensioners href="/1/hi/uk_politics/7746188.stm">At-a-glance: Pre-Budget report href="/1/hi/uk_politics/7746912.stm">Analysis: A political budget
But Mr Brown said: "To fail to act now would not only be a failure of economic policy but a failure of leadership. Doing too little too late would mean more damage and more deterioration. Shadow chancellor George Osborne, for the Conservatives, accused Mr Darling of "bringing this country to the verge of bankruptcy" by doubling the national debt, which is set to reach £118bn next year.
"The loss of vital successful businesses. And it would mean a weaker economy, lower growth, eventually greater fiscal problems, and in that event higher interest rates and higher taxes." Mr Osborne accused the government of creating "a huge unexploded tax bombshell timed to go off at the time of the next economic recovery".
He said the economic "dogma" that had dominated the past 20 years was over as deflation - rather than inflation - was now the biggest threat to the economy. He said Mr Darling had offered "temporary tax giveaways paid for by a lifetime of tax rises on the British people" and he said the country's future had been "mortgaged to bail out the mistakes of the past".
And he said he did not want to repeat the mistake of previous governments when "failure to take action at the start of the recession has increased both the length and depth of the recession". Lib Dem treasury spokesman Vince Cable said VAT cuts would not be enough to boost consumer spending and "it would be much more sensible to put money directly in the pockets of low paid workers by cutting their income tax".
"The best way for taxes to be lower in the long term is for us to ensure that the downturn is as limited in its length and scope as possible," Mr Brown told the CBI conference in central London. class="bodl" href="#graph">See how government deficit will evolve
He said the borrowing needed to fund tax cuts would be paid back through further efficiency savings and sale of government assets. In his Commons statement, Mr Darling slashed economic growth forecasts for next year from 2.75% to between minus 0.75% and minus 1.25% - the biggest downward revision on record.
'Symbolic significance' But he said the government would inject an extra £20bn into the economy, or 1% of GDP, in a bid to get it moving again funded in part by an extra £5bn in efficiency savings and a big increase in government borrowing.
Chancellor Alistair Darling is expected to outline a series of immediate tax cuts in the pre-Budget report to boost the economy, which is widely believed to be in recession. In these extraordinary circumstances allowing borrowing to rise is the right choice for the country Alistair DarlingChancellor class="" href="/1/hi/business/7746652.stm">Hugh Pym: Staggering debt class="" href="/1/hi/uk_politics/7745994.stm">Osborne slams 'tax timebomb' plan
He is expected to cut VAT from 17.5% to 15% - the lowest level allowed under EU law - in a bid to get consumers spending again. There would also be a dramatic cutback in government spending - with it being projected to rise by just 1.2% a year, less than the normal growth rate of the economy and down from the already tightened plans for 1.8% spending increases.
WHAT WE DON'T KNOW YET Debt: Could exceed £100bn annuallyTaxes: Possible future rises for middle income earnersPublic spending: Possible cuts after 2010/11Growth: Forecast could be cut to 0% or even - 1% next year class="" href="http://www.bbc.co.uk/blogs/nickrobinson/">Nick Robinson's blog The most expensive stimulus measure is a temporary cut in VAT from 17.5% to 15% aimed at getting consumers spending again.
Mr Darling is also expected to outline how that money could be paid back in future years through a combination of slowing growth in government spending and tax increases. Mr Darling says the cut - which comes into effect on Monday in time for the peak Christmas shopping period - will put £12.5bn into the pockets of consumers over the course of the 13 months it will last.
But he will also announce that a new 45% rate on earnings over £150,000 will be brought in if Labour win the next election. Pensioners will also be given a one-off payment of £60 - £120 for couples - in January on top of their £10 Christmas bonus.
Such a move would mark the end of New Labour's long-standing pledge not to increase people's income tax rates. But the rise in duty on alcohol, tobacco and petrol, to ensure they do not benefit from the cuts in VAT, will be permanent.
BBC political editor Nick Robinson said the increase in the top rate of tax was of "huge symbolic significance", but stressed it would only raise a fraction of the sum needed to get the public finances back in order. HOW VAT CUT AFFECTS PRICES Mars bar - down 1pJVC LCD television - down £12.77Levi's jeans - down £1.49Next suit jacket - down £3Ford Focus - down £322 class="" href="/1/hi/uk_politics/7747027.stm">In quotes: PBR reaction
Cameron 'sceptical' And in measures aimed at clawing back the VAT cut and other measures, top rate tax will increase to 45% from 2011, for people earning more than £150,000 a year and from April 2011 all rates of National Insurance (NI) contributions will be raised by 0.5% for employees and employers.
The fact that it would only be brought in if Labour won the next election, meant the party would be able to claim it had not broken its 2005 election promise not to increase income tax rates. The starting point for NI will be brought into line with that of income tax so that no-one earning under £20,000 would pay any more contributions as a result, the chancellor said.
It is unclear how much a new tax rate could raise, but a Treasury answer to a Parliamentary question in 2006 suggested a 45% rate on people earning more than £150,000 would have raised £1.2bn. On borrowing, Mr Darling said it would be "perverse and damaging" to stick to government rules in the current crisis so they would be temporarily suspended.
The prime minister has so far refused to confirm a VAT cut from 17.5% to 15%, but did say there would be "substantial" measures to pump money into the economy. 'Extraordinary circumstances'
Conservative leader David Cameron told the CBI conference he was "sceptical" about the government's stimulus plan, arguing it could hold back further interest rate cuts and warning that temporary tax cuts now would lead to permanent tax rises later. Government borrowing would more than double to £78bn this year and £118bn next year, before starting to come down, with the books not to be balanced again until 2015/16.
"They might be talking about tax giveaways but everybody knows that they're throwing money at us now, to take away at a later date. "If we did nothing we would have a deeper and longer recession that would cost the country more in the long term," Mr Darling told MPs.
David Cameron on a "mind boggling" deficit WHAT TAX CHANGES MEAN People earning £20,000 or less will not be worse offPeople earning over £40,000 to pay £156 a year extraPeople earning between £100,000 and £140,000 to pay £1,114 extraPeople earning between 140.000 and 200,000 to pay £3,172 extra
"That is the thing about debt, you've got to pay it back sooner or later. And to pay back all this money would mean an 8% rise in income tax or a 6% rise in VAT or a corporation tax rate of 71%." "In these extraordinary circumstances allowing borrowing to rise is the right choice for the country."
He said Labour claims the Tories would do nothing were "complete rubbish" adding the party would freeze council tax, allow companies six months to pay their VAT bills, cut the tax rate for small business and introduce tax breaks for job creation. The party would pay for the cuts with a reduction in public spending growth. He added: "Taken together these steps will ensure that there is extra money flowing into the economy when it is needed most, but we can reduce borrowing when growth returns."
Lib Dem treasury spokesman Vince Cable said: "Now that the government has finally realised that the tax system is unfair and hits those on low incomes the hardest, ministers should focus their efforts on closing loop holes and removing tax advantages that the richest currently enjoy. In other measures, Mr Darling speeded up the introduction of planned rises in child benefit and measures aimed at helping small businesses hit by the credit crunch.
"The avoidance opportunities and reliefs become even more important if a higher tax rate is introduced. And he softened the blow for drivers by announcing a more gradual introduction of new vehicle excise duty, with rates only going up £5 per vehicle in 2009.
"By itself an increased tax rate on those earning over £150,000 would only raise negligible amounts of additional revenue." Work to upgrade motorways, refurbish schools and repair council houses is also to be speeded by bringing forward £3bn of state spending.
PRE-BUDGET REPORT Report in full Most computers will open PDF documents automatically, but you may need to download Adobe Acrobat Reader. Download the reader here
And there will be more help for home owners, with the scheme which covers mortgage interest payments for those who have lost their jobs doubled to cover mortgages of up to £200,000.
This year's increase in the income tax personal allowance of £120 a year for basic rate taxpayers will be made permanent and increased to £145 in April, helping 22 million basic rate taxpayers - another 500,000 households not just this year but for good.
The 45% top rate will not come into effect until after the next general election, meaning Labour will not break its 2005 manifesto commitment on not raising income tax.
Mr Darling's Commons statement heralds the biggest shake-up of Labour's economic policy since it came to power in 1997.
Giving his reaction to the Pre-Budget report, the SNP's Treasury spokesman, Stewart Hosie, said: "We welcome the VAT cut, the vehicle excise duty changes but question why on earth he wants to put petrol up at this point."
Plaid Cymru's Adam Price said Mr Darling's stimulus package did not go far enough and did not offer "the kind of economic leadership we were hoping for".
The FTSE 100 Index of leading shares rose by a record 9.8% or 372.1 points at 4153, although market watchers said this was largely down to the rescue of banking giant Citigroup which helped ease some of the uncertainty seen the previous week.
return to top