Promoting tax cuts


I've done a few media appearances in the last couple of days talking about tax cuts – how nice to have them back on the agenda! What I've been saying, basically, is that while tax cuts are not a silver bullet, they are a vital part of fighting against recession. We should be using them to encourage economic activity and get the economy going again.

I've argued that the most important thing is to put more money back in people's pockets, both to make it easier for them to get by, but also so they can go out into the economy and spend it. We should raise the personal allowance as high as we can, and get VAT as low as possible.

But I've also made the point that investment, rather than consumption, is where real, sustainable economic growth comes from, so we should reduce the various taxes on that too. An added bonus is that these kinds of tax cuts tend to have the strongest pro-growth, 'laffer curve' effects, so revenue loss should be minimal.

At the same time, I've been saying that it is vital to encourage employment, and that the best way to do that is to reduce, or preferably abolish, employers' national insurance contributions – currently 12.8 percent of all earnings above £94 per week. Putting a tax on jobs is stupid at the best of times, but in a recession it's downright perverse.

I've been keen to stress that these tax cuts should be balanced by spending cuts, rather than more government borrowing (which is just a tax on the future). Every business and household in the country is looking to economize right now, and I don't see why government – with an annual budget of more than £600bn – should be any different.

You can hear me talking to John Humphreys on the Today Programme here.