Vince Cable calls for a “tax neutral” approach to tackle deficit

Liberal Democrat Shadow Chancellor Vince Cable today called for a “tax neutral” approach to tax and spending, and said that up to 80 per cent of the deficit reduction could come through cuts in
public spending.

At the launch of his Reform pamphlet Tackling the fiscal crisis: A recovery plan for the UK he identified savings of £43 billion for 2010/11 – view the detailed breakdown here. To achieve these savings, Dr Cable explained, no departmental budgets would be ring-fenced, public sector pay would be frozen and big projects like ID cards and Trident would be scrapped.

In response to a question from Left Foot Forward he added:

“Our approach is to have an approach to taxation which is tax neutral. We don’t accept that there are simple alternatives and that we do think that actually there is a strong case for cutting taxes because the current income tax structure is a strong disincentive to work and to save.

“Our tax structure should be increasing angles of encouragement to save and by cutting direct taxes we suggest how you do this in a tax neutral way. In practice I suspect that governments will have some recourse to taxation. Those rather carelessly redacted documents that Alastair Darling produced six months ago suggests that the Government already plans to increase Value Added Tax and the Conservative staged whispers on Value Added Tax suggest that they’re contemplating doing roughly the same.

“So I suspect that this will be part of a package but I think it would be wrong to go into this exercise saying publically ‘we believe in this’ and ‘this is our objection on tax cutting’. We need to say as a basic discipline we believe our tax policy will be neutral and will not involve overall tax increases or mounting taxes or further taxes but a disciplined approach.”

Dr Cable’s remarks come against the backdrop of Lord Mandelson’s call yesterday that governments should be “wise spenders, not big spenders” and the Prime Minister’s speech this afternoon in which he is finally expected to admit that spending cuts are inevitable.