Big public spending cuts await…

I have had a few comments by Liberal Democrats claiming that the capital gains tax alone will fund the income tax threshold rise. This has been in response to analysts that have argued that the rise in the income threshold will be primarily paid through public spending cuts, as the LibDem policies that were to fund it have been largely dropped, and in result, the policy will actually be highly regressive. Yes, the LibDems did well with the concession on capital gains tax, but there are problems with asuming that this alone will pay for the threshold rise, and that cuts to vital public services wont also fall under the funding ‘requirements’.

We have to remember that other areas of high spending will be required to fund policies such as the NI rise and the marriage tax. The level and extent of cutting that is going to take place this year, well this is something economists have rightly voiced opposition to. The New Statesman provides a good summary of prominent economists’ arguments against cutting this year, something that seems to have been forgotten in the apparent excitement for deciding where the axe will fall.

However, the problems of cutting now hasn’t seemed to frighten off David Laws, who is already using words such as ‘austerity’ and ‘aggressive’ when talking about cuts. It is no surprise that the Tories have tried to get him to defect. It reminds me of Clegg’s ‘savage cuts’ remark, and also the disclosure that the LibDems went into talks with Labour when discussing the possibility of a coalition (well just making the Tories jealous) demanding the same cuts the Tories’ wanted (a substantial policy change, given that Vince Cable had argued this could result in a double dip recession), something Labour, rightly, couldn’t concede on.

Taking the policies such as the NI and income threshold rise and marrying them with the talk of ‘aggressive’ cuts, all is needed now is to add Cameron’s talk today of the need for tax cuts. Whilst he is not talking about immediate tax cuts, they would obviously still be at a time when there were savings to be made. Thus, how would these policies and the policies to come, such as the inheritance tax, be funded? Well, the only other real option seems to have very regressive big cuts into public spending. He intends to, given appropriate analysis (which will most likely be bias), to remove the 50p rate, something that is again highly regressive and would hit the poorest.

The only way that Cameron could bring in his regressive primarily rich friendly tax cuts would be for economic growth to be substantially successful. I am not against tax cuts, but when the Tories talk of them, it isn’t with the poorest in mind. Furthermore, if it came to a choice between targeted tax rises at the most comfortable in society to stop damaging regressive public services, I know what I would want. When considering warnings from the economists and the way in which they are using the little money there is to spend (e.g NI resulting in inevitable VAT increase), it is unlikely that this needed economic growth will be any time soon. How long will Cameron be able to go before his core support starts becoming annoyed at paying, what they see as an unacceptable level of money, to help the economy? How long before Cameron has no other option but to cut taxes and slash public spending to a much greater extent than outlined, to keep his party happy?