News from Labour Matters

Labour pushes back against tax cut criticism

Stephen Timms MP, Labour’s Financial Secretary to the Treasury, today pushed back against George Osborne’s criticism of the temporary VAT cut and claims of “bankrupting Britain”, saying:

“Alongside countries around the world, we have injected a £20bn fiscal stimulus to help the economy. We are providing real help by cutting income tax, providing extra money for pensioners and children, helping businesses, cutting VAT and supporting people worried about repossession.

“In contrast to the Do Nothing Tory Party who are still opposing any real help”.

The war of words echoes the gulf between Labour and the Conservatives over the economic downturn which is widely seen to be the main reason the Conservatives have recently lost a 20-point lead in the opinion polls.

Stephen Timms is correct to say that Britain is not acting alone, other countries with a fiscal stimulus include the US; France; Germany; Italy; Japan; China; Spain; Australia; New Zealand; Sweden; South Korea; Portugal, and Mexico. The European Union has also acted with a plan which will see €200bn of funding – equivalent to 1.5% of the EU total output, poured into economies.

Dominique Strauss-Kahn of the International Monetary Fund recently also backed such action:
“If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it’s now.”

But the Conservatives claim that Britain can’t afford to cut income taxes, VAT, and providing extra money for pensioners, children, and businesses. Unfortunately for Mr Osborne, as our chart shows, Britain’s debt is far lower as a percentage of GDP than Japan; Italy; Germany; France; Portugal; and the United States.

Once President-elect Obama is sworn in, his administration is also expected to raise the stakes even higher by announcing a massive US fiscal stimulus, and if Britain can’t afford it then acording to Cameron’s Conservatives neither can the USA.

The Conservative shadow chancellor’s ‘do nothing’ attitude is also at odds with recent comments from the Bank of England’s Mervyn King:

“In these extraordinary circumstances it would be perfectly reasonable to see some use of fiscal stimulus, provided I think two conditions are met. One is that it would be temporary, purely temporary, and secondly that it would be clear that there was a medium term plan to bring tax and spending back into a sustainable balance over the medium term,” he said recently.

According to the CIA factbook, public debt measured as a percentage of GDP (2007 est.) for those countries which have stimulated their economies are:

Japan 170%
Italy 104%
Germany 64.9%
France 63.9%
Portugal 63.6%
US 60.8%
UK 43.6%
Sweden 41.7%
Spain 36.2%
South Korea 28.2%
Mexico 22.8%
New Zealand 20.7%
China 18.4%
Australia 15.6%

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