An open letter to George Osborne – cut taxes for the low paid, and do it quickly

Dear Mr Osborne,

The economic strategy put in place by you and the coalition government in which you serve last May was the right one for Britain. In these turbulent economic times, the one thing we can be sure of is that Britain’s economic position would be considerably more precarious now had the government not put in place a credible, balanced and achievable plan to reduce Britain’s budget deficit.

But economic conditions have changed substantially since last May. Inflation is eating into people’s spending power at a greater rate each month, and the crisis in the eurozone is suppressing the export market which must play a vital part in Britain’s recovery.

It finally appears that the latter of these problems is now being dealt with. The first, though, just keeps getting worse, as today’s rise in the CPI to 5.2% shows.

Inflation itself is clearly a problem outside your hands, and even the Bank of England’s policy options are limited because of the factors forcing inflation up.

But fiscal policy is absolutely in your hands.

A VAT cut, as suggested by the Labour party, would be both expensive and pointless, benefitting mainly those who have enough money to spend on luxury goods in the first place (clearly not the people being most affected by the squeeze on living standards).

But one policy change that would undoubtedly help would be the swift implementation of the coalition’s policy of raising the income tax threshold.

First, this would negate the effects of current inflation on the lowest paid, meaning they don’t have to cut back as a result of price rises.

And secondly, it would have a positive knock-on effect on economic growth, limiting the damage that inflation will do to GDP.

And what’s more, given that this is a policy already budgeted for over the course of this parliament, the cost of implementing the policy more quickly is relatively small and short-term, and so can be paid for with temporary tax increases on those who can afford them.

At a time like this, it is both desirable in itself and economically sensible to cut taxes for the low paid. I urge you to do so, and do so quickly.

Yours,

Nick Thornsby.

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6 responses to “An open letter to George Osborne – cut taxes for the low paid, and do it quickly

  1. …Don’t know whether you saw this on growth yesterday by Ernst & Young’s ITEM club. Suggestion has been for the Bank to cut the rate to 0.25%:

    “The euro turmoil has led to the respected Ernst & Young ITEM Club cutting by almost fifty percent its prediction for British economic growth in 2011 since the summer. It is now expecting the economy will grow by just 0.9 percent this year, signalling almost zero growth before the end of the year.”

    Full link – http://www.telegraph.co.uk/finance/financialcrisis/8830575/UK-economy-brought-to-grinding-halt-by-euro-crisis.html

  2. It’s long been argued by Vince Cable and many others that the lower paid tend to spend what they have from week to week – so if the tax threshold is raised, much of that money will feed back immediately into the economy.
    There is a strong argument that a tax neutral change that raises the tax threshold while raising tax at the middle and upper end will benefit the recovery by helping consumer spending.

    • Absolutely. When I put the point to Nick Clegg he absolutely recognised that argument – I suspect the Treasury aren’t too keen though!

    • “It’s long been argued by Vince Cable and many others that the lower paid tend to spend what they have from week to week…”

      Let’s get it right- the lower paid HAVE to spend what they have from week to week. there’s no ‘tend’ about it.

      Let’s stop the messing with tax to make people feel better off and give the unions back their bargaining power to ensure high wages.

  3. Lowering the higher rate threshold would help pay for it a little. If the higher rate threshold was reduced to £30k then it would still only be people earning over £40k paying the higher rate.

  4. Perhaps John Leech MP could be approached to be more vocal on this, having seen his EDM on Monday concerning income tax and the personal allowance, signed by 6 Lib Dems and 1 Tory so far – http://www.parliament.uk/edm/2010-12/2335

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