Page last updated at 18:17 GMT, Monday, 24 November 2008

Cable derides 'fig leaf' tax cuts

Cable reaction to PBR in full

The government's plans to boost the economy by cutting VAT and to raise taxes on high earners are a "very limited, fig leaf", says Vince Cable.

The Lib Dem Treasury spokesman said he failed to see how a temporary reduction in VAT from 17.5% to 15% would give the economy a "major stimulus".

Offering an extra £25 rebate to basic rate taxpayers was "pathetic" he said.

He also questioned the "highly optimistic assumption about growth" in the chancellor's pre-Budget report.

Responding to the chancellor's speech in the Commons, Mr Cable said a "national economic emergency" required radical action and "serious tax cuts" for low and middle earners.

Tax increases

Mr Cable, whose party wants to lower the basic rate of income tax from 20p to 16p in the pound, partly paid for by closing tax loopholes they say benefit the wealthy, said Chancellor Alistair Darling was offering a "fig leaf".

He said the chancellor's plans were based on "a temporary small cut in VAT" adding: "What I fail to see is how the economy gets a major stimulus for, for example, a £5 cut in a £220 imported flat screen television or a 50p cut in a £25 restaurant bill."

PRE-BUDGET REPORT

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He said income tax should be cut to give low earners money "directly in their pockets" not "the pathetic £25 they are being offered and if they earn over £25,000 a year - the prospect of tax increases".

He was referring to Mr Darling's announcement that this year's £120 rebate for basic rate taxpayers would be extended for another year and increased to £145. National Insurance contributions will also rise by 0.5% from April 2011.

Later he told the BBC the people who would end up paying for a VAT cut that would achieve "very little" were those who paid National Insurance.

He also said the whole package assumed Britain would return to "buoyant growth" in two years, was based "on a highly optimistic assumption about growth" and that massive efficiency savings could be made without an impact on services.

Mr Cable said the government had acknowledged the tax system was unfair but their proposals to raise income tax on people earning over £150,000 a year would come in "in two years, possibly". The new upper rate would come in from April 2011 - after the next general election.

"What surely is needed is a comprehensive approach which cuts income tax on the low paid [and] middle income families, removing the plethora of tax reliefs and allowances which the wealthy benefit from - not this very limited, fig leaf for redistributive policy."

Earlier he warned that unless action was taken to close loopholes - the rich could avoid paying a 45% rate.

"If people pay capital gains they pay 18% whereas now they will be paying 45% of their income. So if they have got a good accountant, they will simply turn their income into capital gains and avoid paying tax altogether," he told the BBC.



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