Tory conference: Osborne rules out temporary tax cuts

 

Chancellor George Osborne's full speech to the Conservative Party conference in Manchester.

Chancellor George Osborne has said taxes will only be cut when the government can afford to do so, in a speech to the Conservative conference.

Mr Osborne has found £805m to freeze council tax in England in 2012-13 - saving people £72 a year.

But he stressed that money is still tight and there will be no deviation from his deficit reduction plan.

He said solving the eurozone crisis remains the most important factor in kick starting growth in the UK.

The chancellor has been under pressure from Labour to cut VAT to inject money into the economy - and from senior figures in his own party to scrap the 50p top rate of income tax.

'Debt crisis'

But in a sober speech to party activists, the chancellor said it would be wrong to borrow money to fund temporary tax cuts or increase public spending.

He did, however, announce that the Treasury would engage in "credit easing" - a move aimed at cutting the cost of borrowing for hard-pressed businesses, as well as improving access to loans.

The BBC's business editor Robert Peston said the move, which would involve the public sector buying bonds issues by companies, was "potentially very significant" but full details would not be revealed until the chancellor's autumn statement in November.

In his speech, Mr Osborne said he had "thought hard" about what more can be done to boost growth and explored "every single option" - but "borrowing too much is the cause of Britain's problems, not the solution".

ANALYSIS

The most significant announcement in the chancellor's speech is also the one fewest will understand.

It is his pledge that the Treasury will engage in "credit easing" - ie some as yet unspecified way to underwrite loans to small businesses who are struggling to get credit now.

The speech that they are quoting at the top of government is by Adam Posen (a member of the Bank of England's interest rate-setting committee).

Although I'm told that his proposal for a new bank may take too long to implement.

"We would be risking our nation's credit rating for a few billion pounds more, when that amount is dwarfed by the scale and power of the daily flows of money in the international bond markets, swirling around ready to pick off the next country.

"We will not take that risk. We are in a debt crisis, it is not like a normal recovery. You can't borrow your way out of debt."

And he added: "I'm a believer in tax cuts - permanent tax cuts paid for by sound public finances.

"Right now, temporary tax cuts or more spending are two sides of exactly the same coin, a coin that has to be borrowed - more debt that has to be paid off."

Mr Osborne said Britain's economic troubles were caused by the "catastrophic mistakes" of the previous Labour administration, as well as banks which "let down their customers, let down their shareholders and let down this country".

'Underspend'

He said the government is helping businesses by keeping interest rates low - "the most powerful stimulus that exists" - but borrowing billions of pounds more would put that at risk.

Mr Osborne's speech comes as the Institute of Directors called for a fresh effort to boost economic growth in the UK.

The chancellor announced increased investment in scientific research and the extension of mobile phone coverage to six million people - as well as extra cash from a Whitehall "underspend" to fund a council tax freeze.

Start Quote

His speech really seemed incredibly complacent and quite frankly out of touch”

End Quote Chris Leslie Labour

The government cannot force councils to freeze bills but it is offering to give those that limit spending rises to 2.5% the money they need.

Money would also be offered to the Scottish and Welsh administrations, which will choose how it is spent.

Speaking earlier to BBC News, Mr Osborne said a solution to the eurozone debt crisis must be found by the time the Group of 20 nations meet next month and failure to do so would be "terrible not just for Britain, not just for Europe, but for the entire world economy".

The chancellor, who is travelling to Luxembourg for a meeting with European finance ministers, told BBC News that the 17 eurozone nations meeting in Luxembourg on Monday must decisively figure out how to handle Greece's debts, and urged them to extend the size of their bailout fund.

Credit rating

The chancellor's speech comes as Standard and Poor's said it would hold the UK's credit rating at the highest possible level in light of its "wealthy and diversified economy" and said the outlook remained "stable".

But the agency, which released the announcement just as Mr Osborne took to the stage in Manchester, said the government's efforts to correct the UK's public finances would "weigh on the economy".

For Labour, shadow Treasury minister Chris Leslie said it was "staggering" the speech did not give more attention to the "growth problem".

He said: "His speech really seemed incredibly complacent and quite frankly out of touch, out of touch with the realities of some of the costs that ordinary people face, the difficulties that businesses are facing and no plan for growth."

But Andrew Tyrie, the senior Conservative backbencher who said at the weekend that the government was not doing enough to promote economic growth, told the BBC: "I think it's a huge step forward, and will be widely welcomed not only in the party, but by all those people in the country who also need a growth strategy to help them move forward."

 

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  • rate this
    +2

    Comment number 714.

    The 2.5% the Government is offering is a temporary measure. When the money runs out, any increase to Council tax would be on the full bill, not the rebated figure we're paying now.

    What's wrong with tax breaks for companies that export? Rather than just promoting manufacturing as a cure-all/scape goat.

  • rate this
    -7

    Comment number 693.

    There is more the government could be doing to win the confidence of the markets. Abolishing pensioners free TV licences, bus passes, winter fuel payments, free eye and dental check ups, not having a council tax freeze, abolishing child benifit and all VAT exemptions would be a good start. Things will get harder for some people, but it will be worth it in the end. And the 50% tax rate needs to go.

  • rate this
    +2

    Comment number 492.

    Reducing any form of tax would be disastrous all the while the massive deficit run up by Labour remains. The UK would descend further into the same trap that Brown and Darling presided over for 13 years.

    Why can't some understand that you don't reduce your debts by borrowing more? As to higher rate tax today, it's still less than the basic rate was in the 1960s. They should cease bleating.

  • rate this
    +12

    Comment number 96.

    The truth is there are no quick solutions.

    As a nation we need to learn how to produce goods that we and other people want to buy rather than consume and live off our wealth.

    I remember Blair saying he would take us to the average European spend on health & education, he has and now we are building up debt like Italy & Greece. It was a delusion in an economy struggling to sell goods.

  • rate this
    +9

    Comment number 90.

    As Mr Osbourne stated, this is not a usual recession/downturn, where borrowing can get us out of it. The issue is that the borrowing has reached levels not sustainable.
    Suggesting more borrowing on is just plain wrong. I imagine you are recommending Greece, spain and Italy all borrow more then?
    It is about promoting and fostering positivity and investment in the private sector to generate demand

 

Comments 5 of 8

 

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