Tuesday, 15 June 2010

Don't go back on the spirit of the coalition agreement, Mr Osborne

The word coming out of Cowley Street is that the promised lifting of the income tax personal allowance will not start until April 2011 and will not be complete until the fifth year of the coalition government. At the same time, there are many hard-line Conservatives calling for the capital gains measures which would have paid for it to be scrapped. For discussion on the fairness of this (and the raising of VAT rates, which the civil service mandarins would prefer), see http://socialliberal.net/2010/06/14/open-letter-to-nick-clegg-and-danny-alexander/ and http://www.libdemvoice.org/liberal-democrats-must-not-compromise-fairer-taxes-19968.html.

I suggest another reason for taking the low-paid out of tax as soon as possible: that it is going to give a bigger boost to economic activity than all the Bank of England's easing. If you give money to poorer people they will spend it. If you give money to the banks, who have been shocked from being extremely high on risk to being extremely risk averse, they will use it to restore their reserves rather than lend it out, no matter how hard Vince Cable may urge them  to be more progressive.

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