Lib Dems: the way out of the Recession
January 6, 2009 7:55 PM
Liberal Democrat Shadow Chancellor, Vince Cable, gave a comprehensive response to the PBR, criticising in particular the Government's optimistic growth figures and drastic cuts in future public spending.
Liberal Democrat Leader Nick Clegg set out plans in December to put Britain on a green road out of the recession: creating jobs and leaving a legacy that will save energy, put money back into people's pockets and fight climate change. "These are real, achievable goals that would make a real difference to people's lives now, create new jobs and leave an infrastructure for a long-term, green economic recovery."
The plans would be paid for by scrapping the VAT cut. The vast majority of that money will be spent immediately, making a real impact on the economy and people's lives right away. The Lib Dems proposals include:
A five-year programme to insulate every school and hospital, with 20% of these done in the first year;
Funding insulation and energy efficiency for a million homes;
Building 40,000 additional zero-carbon social houses;
700 new train carriages, re-opening railway lines and stations and electrifying mainlines on the rail network;
Installing energy and money saving smart meters in every home within five years.
Caroline Pidgeon says "every day we hear about workers being laid off, families struggling with bills and elderly and vulnerable people plunged into fuel poverty. Borrowing £12 billion to tinker with VAT will do little to help. For what it costs to make that small VAT cut, the Liberal Democrats are proposing an economic programme to help put unemployed people back into work and leave a legacy that would reduce bills, save energy and fight climate change."
The Liberal Democrat Shadow Chancellor, Vince Cable, has argued that the Government grossly overstated the effect of the VAT cut in providing an economic stimulus - indeed, with many retailers already reducing prices by 20-30%, the VAT cut has barely been noticed. The Institute for Fiscal Studies pointed out that the impact of the VAT change on the richest 10% of the population will be to make them 1.6 % better off; the impact on the poorest 10% will be to make them only 0.6% better off. This is because most expenditure by people in low-income groups, notably food and children's clothes, are exempt, and VAT on energy is charged at a lower rate.
Dr. Cable also pointed out that the enormous £300 million administrative costs of implementing the tax cut would particularly affect small businesses. The managerial time and practical problems of conversion will substantially reduce much of the benefits. And, of course, we know that Labour will put VAT back up again after a couple of years.
Liberal Democrat MPs called for a right to vote on the Chancellor's proposals. Dr. Cable gave a comprehensive response to the PBR, criticising in particular the Government's optimistic growth figures and drastic cuts in future public spending. He said the 16% cut in public spending over the next 3 years made "complete nonsense of the Government's claim to be borrowing to invest...how on earth is this supposed to stimulate the economy? In emergency situations, Governments have to act, and the economic emergency requires drastic action."
Dr. Cable has also reiterated Liberal Democrat policy for a permanent tax cut for low-paid workers; the Government's new 45p top rate tax is "pure tokenism, and of no economic significance, as high earners will divert funds to their pension to avoid the top rate".
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