Ynys Môn Liberal Democrats

Lib Dem Income Tax Cut Proposal Rejected by Government

A Liberal Democrat motion calling for an immediate substantial cut in income tax for lower and middle income families was rejected by Labour MPs yesterday.

Liberal Democrat motion:

"...this House is concerned at the increasing difficulties caused by the current economic crisis to many British citizens in maintaining their homes, paying their bills and providing for themselves and their families; believes that these problems originated not just in the global financial system but in unsustainable levels of personal borrowing and house prices which were overlooked by Government policy; is alarmed at the steep rise in mortgage arrears and repossession orders; regrets that, despite receiving £500 billion of taxpayers' money, the banking industry has failed to respond adequately to the needs of its customers or modify sufficiently its behaviour in respect of mortgage interest rates, new lending to struggling small businesses and its bonus culture; notes that the Bank of England has implemented the 2 per cent cut in interest rates which the Liberal Democrats called for and urges it to make further cuts if the economy deteriorates further; and calls on the Government to introduce an immediate substantial cut in income tax to benefit low income and standard rate taxpayers, paid for by wealthy individuals who profited disproportionately from the economic boom and who do not pay their fair share of tax."

Shadow Chancellor Vince Cable introduced the motion, setting out why the Liberal Democrats are calling for tax cuts for people on low and middle incomes. He said the main argument was one of fairness, but there were other benefits too.

"Clearly, people on low incomes have a higher propensity to spend than those on high incomes, who are very wealthy. Our proposal, which the new President elect of the United States echoed at least generally, seems highly relevant. We have advocated a programme whereby income tax should be cut for people on low incomes, either by raising thresholds or cutting the basic rate by the equivalent of 4p in the pound. We are therefore considering an amount of approximately £1,000 for a £30,000 income tax payer. The proposal would be funded in a variety of ways, which we have set out, one of which involves tackling potential tax avoidance and the existing concessionary rates that people pay on capital gains tax. We were impressed with the sensible way in which Lady Thatcher and Lord Lawson devised the capital gains tax rules, and we would like to revert to that, with potentially major Revenue implications.

"We believe that people who contribute to large pension pots should be incentivised, but that larger incentives should not be given to people who make small savings - we believe in closing that loophole. We also believe in a much tougher approach to tax havens. Again, the President elect of the United States wanted to go down that road. Specific measures, such as dealing with leading corporations' evasion of stamp duty, which the Government should have tackled long ago, are blatantly obvious. A series of measures could, if implemented, enable us to make a substantial cut in income tax for people on low and middle incomes."

He outlined three principles underpinning the tax cuts: firstly, that substantial cuts are required to make a real impact, secondly the cuts should be fair - this having being the consistent basis of the Liberal Democrat policy - and thirdly, they should be funded.

Criticising the Government's reported plan to cut tax by borrowing Vince argued: "Government borrowing ultimately has to be paid for - it is deferred taxation or inflation, and that is not a satisfactory way forward either."

Vince went on to highlight a lack of government direction following the bank bailout. Clarification was required, he said, on how to balance the conflicting needs for banks to recapitalise, whilst increasing lending and reducing interest cuts for savers.

"The rational response of the banks is to build up their reserves to get the Government off their backs as quickly as possible so that they can pay dividends and bonuses. The Government's ambition appears largely to be limited to getting the taxpayers' money back as quickly as possible."

The Government's decision to proceed with the Lloyds TSB-HBOS merger was also questioned by the Liberal Democrat Shadow Chancellor:

"I think that they are assuming that because it made sense six weeks ago in order to rescue HBOS from collapse, it still makes sense today. There are growing numbers of authoritative people in the banking system who say that it does not make sense...The deal may well be beneficial to Lloyds TSB, but why is it in the national interest?"

Vince asked how a Liberal Democrat proposal, apparently adopted by the Government, to buy up empty property and land was progressing. "It appears that approval was given for £8 billion of investment in social housing, but that the money is not reaching the social landlords." Similarly on repossessions, the Government claimed to have revised procedures for the courts in such cases, but, said Vince, "no instructions have yet been given".

Susan Kramer MP also contributed to the debate. Discussing causes of the current economic crisis, she emphasised the need for long-term regulatory reform of the banking industry. She suggested that banking bonuses are rewarded for short-term gains, rather than benefiting those who recognise long-term systemic risk. "We must turn the whole picture upside down if we are to have a healthy banking economy."

The party's Shadow Chief Secretary to the Treasury, Jeremy Browne, highlighted the inconsistencies of Tory economic policy. He pointed out that his Conservative opposite number, Philip Hammond, had claimed in the same interview that, "Increasing borrowing is not a strategy for dealing with the recession", yet also that, "To increase borrowing to deal with an economic downturn - that's a perfectly sensible thing to do." And the Tory Shadow Chancellor, George Osborne, had stated that he did not comment on whether banks should increase or decrease interest rates, and then been quoted as urging them to "slash interest rates".

Concluding the debate, Jeremy said:

"My message to Conservative Members who long instead for decisive and coherent leadership is this: "You do not have remain trapped in the high-tax, wasteful spending box into which your shadow Chancellor has locked you. You can support this Liberal Democrat motion and show your constituents that you too believe in the values put forward by my party-effective public spending that offers real value for money, low interest rates to help struggling families and small businesses, and real tax cuts now for low and middle-income households, who need our help." Those are the right policies for Britain; they are Liberal Democrat policies, and they need to happen now."

The Liberal Democrat motion was defeated by 58 votes to 303. Labour MPs voted against it, and Conservative MPs abstained, refusing to support the Lib Dem call. A government amendment was then passed by 289 votes to 216.

Read Vince Cable's speech in full

http://www.publications.parliament.uk/pa/cm200708/cmhansrd/cm081110/debtext/81110-0004.htm#0811107000500

Read Susan Kramer's speech in full

http://www.publications.parliament.uk/pa/cm200708/cmhansrd/cm081110/debtext/81110-0011.htm#08111015000125

Read Jeremy Browne's speech in full

http://www.publications.parliament.uk/pa/cm200708/cmhansrd/cm081110/debtext/81110-0011.htm - 08111015000141