Labour blamed as Tories revisit pledge on tax cuts

Mar 11 2008 by Tomos Livingstone, Western Mail

TORY tax-cutting plans may be put on hold if they win the next election, due to the spiralling national debt, the party admitted yesterday.

David Cameron and Shadow Chancellor George Osborne have resisted calls from the Tory right for an explicit commitment to cuts in income tax, settling instead on a promise to “share the proceeds of growth” between public spending and lower taxes.

But Mr Osborne’s number two, Shadow Chief Secretary to the Treasury, Phillip Hammond, said there was little scope for tax cuts with government borrowing reaching ever-higher levels and economic growth slowing dramatically.

Speaking ahead of tomorrow’s Budget – the first to be presented by Chancellor Alistair Darling – Mr Hammond said government borrowing was already close to the limit of 40% of gross national product under the Treasury’s own sustainable investment rule. The limit is exceeded if the nationalisation of the ailing Northern Rock bank is taken into account.

The UK’s budget deficit is the highest in Europe, the Tories claim, running at nearly 3% of GDP.

The Conservatives blame Gordon Brown for their inability to pledge tax cuts, saying the PM has “failed to prepare” the UK economy for troubled times.

Mr Hammond said, “There will be no dramatic quick fixes. There will be no unfunded tax cuts. We think what is important now is getting back on track to a stable fiscal position.”

The priority of a Tory government, “like any good housekeeper”, would be to cut debts first, Mr Hammond said – a move that would rule out early tax cuts.

He expected Mr Darling would be forced to downgrade his forecast of 2% to 2.5% growth this year to bring it more in line with City predictions – which vary between 1.5% to 1.8%.

The Chancellor would use the Budget to provide “distractions” with announcements on green taxes, alcohol taxes and child poverty, he added.

And the three-year public spending levels set in last year’s Comprehensive Spending Review may have to be reviewed as pressure on the government finances increases, Mr Hammond said.

Income tax changes are highly unlikely in Mr Darling’s Budget, with the cut in the basic rate from 22p to 20p announced last year coming into force next month.

The 10p band will also be abolished on the same date, a move that Tories say will hit those earning under £18,500 hardest.

Mr Darling is under pressure from Labour backbenchers to find money to meet a target of halving child poverty by 2010; experts suggest a £3.4bn re-jigging of the tax credit system would be needed to do this, although the Chancellor is more likely to focus on efforts to get single mothers back to work.

Pressure groups, meanwhile, stepped up their own demands for changes in tomorrow’s Budget.

Gordon Lishman, director general of Age Concern, said, “It is a disgrace that there are now likely to be well over two million older households living in fuel poverty.

“The recent huge hikes in energy prices have been a very hard blow to many of the poorest pensioners and have pushed thousands more into fuel poverty.

“Urgent action needs to be taken to address this problem. The Winter Fuel Payment must go up by at least £100. We also need to see more money for energy efficiency schemes, and energy companies being made to offer meaningful social tariffs.”

Mr Darling is expected to address the fuel poverty issue, possibly imposing limits on the charges by fuel companies.