Wednesday, 14 May 2008

Once a con, always a con

Yesterday saw a volte-face by Brown and Darling as they increased the personal tax allowance by £600 to alleviate the problems caused by Gordon Brown’s last Budget as Chancellor. Alistair Darling has said that economics allows such a set of changes. Don’t be fooled for one second.

This was a wholly political move. A by-election in Crewe and Nantwich is coming just days away and Labour is facing defeat. Frank Field had a lot of support in his campaign to find compensation for the 10p losers, with the threat of losing its Finance Bill, which would lead to political crisis. Darling had already said that compensation would be explained at the Pre-Budget Report, but that’s not for months so the timing of this is obviously political, not that the Government will admit it. This is the same Government who said that the 10p band abolition wasn’t that bad and that no one was losing out (even Stephen Ladyman played that line).

The package is to cost £2.7 billion and paid for through increasing borrowing, which will lead to borrowing forecasts going out of the window. Labour has said for over a decade that it would borrow only to invest. This mini Budget will mean that rule is obliterated as this borrowing is not to invest as the rule intended. Labour has enjoyed deriding Conservative proposals on changes to taxes and government spending as being irresponsible or unfunded upfront changes. With the changes announced yesterday, Labour no longer has the right to accuse the Conservatives of making unfunded tax cuts and trying to make political capital out of it.

Labour has found a short-term response to a more long-term problem. Out of a Budget of over £550 billion, the Chancellor couldn’t find the money to redirect to the increase to the personal tax allowance, an increase which will count for this financial year only. Come next year the personal tax allowance will be cut back, leading to increased tax bills for all. This is a one year con by the Government, the same trick pulled off with the one year Council Tax rebate for pensioners before the General Election of 2005.

As I’ve proposed before, a radical cut back on the waste in Government spending would allow for a solid and permanent reduction in taxation on the working poor, without damaging frontline public services. But did Darling want to go anywhere near that strategy? Of course not. The strategy utilised by Labour through this apparent giveaway is to distract the public from its anger over the initial policy in order to get some stability. But in doing so, they’ve just bottled up more trouble for next year. The public know they can’t trust Labour and that there is always small print to watch out for, as ever Labour doesn’t let down on that regard.

This story has one moral. Don’t Trust Labour.

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