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Friday, 11 May, 2001, 18:06 GMT

Conservatives: The economy

Read more about Conservative policies on taxation, spending, and the economy


BACKGROUND

The Conservatives are still struggling to revive their reputation for economic competence which suffered a blow when Britain left the ERM (the EU's exchange rate mechanism) in 1992.

However, they are campaigning as the party of low taxation, and have criticised Labour for its "stealth taxes".

Under Shadow Chancellor Michael Portillo, they have taken note of the popularity of public spending on certain key services like health and education, and have pledged to match Labour's spending pledges for these areas.

The Conservatives have also criticised the Labour Party for adding to the burdens of business, both in terms of higher taxes and increased regulation. But they have decided to support the minimum wage.


THE ECONOMY

The Conservatives claim that the economic recovery began under their administration, and that Labour has mismanaged the economy.

They are warning that Labour is underestimating the scale of the world economic slowdown, and the Chancellor was following "an imprudent path in an uncertain world," with government spending in danger of spiralling out of control.

The Tories are also concerned that Labour is not being tough enough on inflation, and Michael Portillo has suggested that he would lower the inflation target from 2.5% to 2.0% (although this is not a Manifesto commitment).

However, the Conservatives have now accepted the independence of the Bank of England, and want to go further than Labour in maintaining that independence, by changing the way that members of the Bank's Monetary Policy Committee are appointed.

The Tories also want an independent body to assess government spending plans to check whether they are affordable.


TAXES

The Conservatives want to reduce the burden of taxation on individuals and businesses - and they say Labour has increased taxes by the equivalent of 10p in the pound during its period in government.

They plan to cut taxes by 8bn over the next three years by cutting public spending on non-essential areas.


Tory tax cuts

  • Cut savings taxes: 3bn
  • Cut fuel tax: 2.2bn
  • Restore married couples allowance: 1bn
  • Increase child tax credit: 0.3bn
  • Raise pensioners allowance: 0.8bn
  • Total: 8bn
    Their headline tax cut is a reduction in the duty on petrol by 6p a litre, costing 2.2bn.

    Other manifesto commitments include exempting savings from tax for ordinary taxpayers (costing 3bn), raising the personal allowance for pensioners, and helping families with children, partially restoring the married couples allowance with a tax credit for wives who stay home with young children, and increasing the Child Tax Credit by an extra 4 per week for families with children under five.

    They also say that the burden of taxation on business is too high, and they want to start by cutting business rates and the Climate Change Levy, which charges more to companies which use lots of energy and release more greenhouse gases.

    They have promised to repeal IR35, a regulation introduced by Labour which taxes the income of some consultants as if they were employees.The Tories claim that the regulation has forced many people, particularly IT specialists, to relocate overseas.

    And they have promised more tax cuts later on.

    Shadow chancellor Michael Portillo has promised to move up the thresholds for the higher rate of income tax and inheritance tax, if more funds can be freed later in a Conservative Parliament.

    The Conservatives are critical of Labour's approach to targeting tax cuts, which they say makes more people subject to means testing and puts a burden on business to administer the new taxes.

    They believe that the Working Families Tax Credit is too generous and goes too high up the income scale for a means-tested benefit.


    PUBLIC SPENDING

    The Conservatives want public spending to grow no faster than the rate of overall economic growth in order to leave room for the private sector - around 2.5% annually, compared to Labour's plans for spending to grow by 3.8%.


    Tory spending cuts

  • Social security: 2.5bn
  • Housing and regions: 1bn
  • Government bureaucracy: 1.8bn
  • University endowments: 1.3bn
  • New Deal: 0.6bn
  • Legal aid: 0.3bn
    And they hope too, that by limiting the growth of public spending, they will leave room for their planned tax cuts for businesses and families.

    But they have also pledged to match Labour's spending plans in four key areas - health, education, defence, and law and order.

    That means that the money to fund any tax cuts will have to be found by cutting the budgets of other departments or identify savings.

    The Conservatives say they have identified a number of major savings, especially by elimating social security fraud and cutting government bureaucracy.

    However, critics say that many of these are not real, identified savings.

    Labour and the Liberal Democrats argue that these savings are bogus, and that the Conservatives would have to cut public spending in vital areas as a result of their "irresponsible" tax cuts.



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