Page last updated at 15:13 GMT, Tuesday, 11 November 2008

Tories propose business tax cuts

David Cameron sets out the details of his party's proposals for tax cuts

David Cameron has unveiled plans to reduce National Insurance payments for firms which employ people who have been unemployed for more than three months.

The Tory leader said it would be funded from unemployment benefit savings and would be "fiscally responsible".

It comes as Gordon Brown signalled he backed unfunded tax cuts as a "fiscal stimulus" to get the economy moving.

Mr Cameron accused the prime minister of "splashing the cash as if there's no tomorrow".

Mr Brown responded by saying the Tory figures "do not add up".

The Liberal Democrats have already pledged tax cuts for low and middle income earners and accuse both Labour and the Conservatives of "timidity" when what was needed, they say, are big income tax cuts.

Labour: Raised personal tax allowance to benefit basic rate taxpayers by 120 this year after 10p tax row, stamp duty threshold raised, 2p fuel duty rise postponed. Any further cuts expected to come in pre-Budget report

Conservatives: Abolish stamp duty for first time buyers on homes up to 250,000, raise inheritance tax threshold to 1m, cut corporation tax from 28p to 25p, encourage council tax freeze. NI cuts for firms who take on unemployed people

Lib Dems: Have already pledged tax cuts for low and middle-income families by cutting basic rate from 20p to 16p. They say people on 30k a year would get an extra 1,000 in their pockets. Would remove tax loopholes for the rich.

Outlining his policy Mr Cameron said it was "a mistake" to think the government could "borrow without limit" and he believed the government had rowed back on publicised plans for a Keynesian-style "spending splurge".

He believes the NI contributions plan would create 350,000 jobs and cut firms' tax burden by 2.6bn. In effect, the Tories say, companies would receive a proportion of the benefit payment in the form of a tax break.

The 2,500 NI credit would be paid in full for jobs of 30 hours a week or more or half that for part-time work of 16-30 hours.

It would be limited to a maximum of 20% of the workforce and would only be paid to those who had made no redundancies in the previous three, and subsequent three months.

Mr Cameron told a press conference the plans were a "budget submission" - which he hoped the government would implement now, as it was best done "at the beginning of a recession".

"One of the biggest worries for people right now is unemployment," he said.

"Instead of the government paying for them to be unemployed it can be paying for them to be in work."

'Fiscally responsible'

He said his plan was "fiscally responsible because the money is only spent if someone comes off the unemployment register ... The saving is made in the current year and the spending is in the current year."

But in his monthly press conference, Gordon Brown dismissed the plan as a "one-off initiative" when what was needed was "a serious policy for serious times".

And he added: "They can't show definitively how they can guarantee to pay for it."

"They change their policy every day, they have a new initiative to get them on the news, but it is not serious in measuring up to the problems we face."

Employment minister Tony McNulty tells Andrew Neil that taxes may have to go up in the longer term.

He said a fiscal stimulus meant being "prepared to add to borrowing in conditions where you have low national debt" whereas funded tax cuts would not achieve the desired result: "That is not a fiscal stimulus."

But the Conservatives say extra borrowing now will mean higher taxes later.

Employment minister Tony McNulty was pressed on the issue on BBC 2's Daily Politics, and asked if taxes would have to go up after the next election to pay for borrowing.

He replied: "Over the longer term, that's the point, what do you do now in the short term to get over the difficulties that there are now and then how do you, very responsibly, get back to equilibrium over that longer term."

'Big' tax cuts

Shadow chancellor George Osborne told BBC Radio 4's World at One programme Mr McNulty had "let the cat out of the bag" and confirmed taxes would have to rise in the long term. He added: "Extra borrowing means higher taxes when you are trying to have a recovery."

There was a mixed response among businesses to the Tories' proposals. John Cridland, of the CBI, said they "would help some small businesses keep people in work" but the British Chambers of Commerce said firms were not in a position to start recruiting.

What people need now, millions of ordinary British families who have been paying too much in tax for too long is a big tax break
Nick Clegg

There were also some concerns that it might put firms off recruiting people who had only just lost their jobs.

Meanwhile the Liberal Democrat leader Nick Clegg has said that, under their income tax policies, people earning 30,000 a year would get 1,000 extra in their pocket.

The party is proposing significant tax cuts for people on low and middle incomes funded by closing tax loopholes for the wealthy, pension allowances for higher rate taxpayers and raising green taxes.

Mr Clegg said tax cuts had to be "big" to have any effect and accused Labour and the Conservatives of "tinkering and timidity" when what was needed was a dramatic lowering of basic rate income tax.

"What people need now, millions of ordinary British families who have been paying too much in tax for too long is a big tax break."

The Tory proposals come as a poll for the Times suggested their lead over Labour has fallen sharply in recent weeks - from 15 points a month ago to six points now.

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