Danny Alexander lays out Liberal Democrat economic plan

Today the day after George Osborne delivered the final budget of this coalition Government Danny Alexander the Liberal Democrat Chief Secretary of the Treasury laid out our plans for tax and spending.

Lib Dem plans include borrowing £70bn less than Labour and cutting £50bn less than the Conservatives, keeping Britain on the path to prosperity, showing that we still believe in a stronger economy AND and fairer society; the Conservatives recently dropped the latter in a campaign poster and in their budget plans.

Danny announced using the same figures that were available to Osborne that there is still roughly roughly £30bn of fiscal consolidation by 2017/18 to complete the job of economic recovery. To go about funding this the Liberal Democrats will ensure that those with the broadest shoulders to bear the largest share.

To fund this the Liberal Democrats will raise £6bn through shutting remaining tax loopholes, £6bn will come from tax rises, with high value properties and the banking sector paying more. The additional money will come from £12bn of departmental savings and £3.5bn from welfare savings.

Public expenditure can then start to increase once this threshold is met and ensuring that the NHS has the £8bn a year it needs to secure its future.

 The measures to tackle tax invasion include:

•  Introducing a new strict liability criminal offence for off shore evaders so that pleading ignorance can no longer be used in an attempt to avoid criminal prosecution. 
• Introducing a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion. This would stop organisations from being able to get away with facilitating or abetting others to evade tax. 
• Increasing financial penalties for offshore evaders – including, for the first time, linking the penalty to underlying assets. A billionaire evading £5m of tax won’t just be liable for that £5m. 
• Introducing new civil penalties so that those who help evaders will have to pay fines that match the size of the tax dodge they facilitate. So if you help someone evade £1m of tax, you risk a penalty of £1m or even more yourself. 
• Extending the scope for HMRC to name and shame both evaders and those who enable evasion.

Osborne Should Learn His Recession Highway Code

"Mirror, signal, manoeuvre."

That is the order of actions to be taken over overtaking, changing lanes etc whilst driving a car. The equivalent, "look, announce, move" may well be said of a Chancellor driving an economy out of recession. Such a warning that the Conservatives party are not going to do this has come from Vince Cable, the Liberal Democrats Treasury Spokesman.

"It's foolish to set a political timetable with no regard for the state of the economy. There's a big risk that if cuts begin suddenly and on a purely political basis the economy will be plunged back into recession.

"What is needed is a set of clear economic tests, which include the growth of the economy and employment, as well as conditions in international markets, to judge when contraction of spending should begin or be accelerated."

The reason for such a call is the announcement that George Osborne is liable to make cuts within the first 50 days of a Conservative Government. Speaking and the London School of Economics he said:

"Programmes that represent poor value for money, excessive spending on things like advertising and consultants, spending on tax credits for people earning over £50,000, and spending on child trust funds for better-off families will all have to be cut during the financial year."

Adding:

"Everyone knows the government's spending plans for next year are driven by a looming election and not economic reality. So, with the date of the general election increasingly likely to be after the beginning of the next financial year, that means we will need to make early in-year reductions in existing plans."

Therein lies not one but two problems. The first is as Vince has pointed out what George is actually doing is also announcing a budget 'driven by a looming election and not economic reality'. Some of the cuts that may well be representing poor value for money may well be important ones for the economy. Just what value of money is the Tory party going to use?

The second is that he has now announced where he is targeting cuts. Expect a little bit of accelerated budget spending on some of those programmes that fear they are at risk of cuts at the start of the financial year. Commitment to spend the money before it can be taken away. If the election is May 6, that would mean George's quick budget would come by 25 June. So spending may be accelerated first quarter of the financial year to avoid it being taken away, then a slow down in the remainder of the year for fresh spending.

Therefore it is possible that the acceleration and contraction of spending may well be outwith the control of a Conservative Chancellor. He is hinting that the two-thirds cut and one third tax to cut into the deficit he is looking at an 80:20 ratio to accelerate this reduction himself. Of course Vince is merely reiterating the opinion he took over the weekend when he said;

"My party takes the view that the government's eight-year plan, with a four-year halving of the deficit, is a reasonable starting point.

"My judgment is that we will probably discover that it is not enough, but we have to start somewhere and it is a reasonable working assumption."

Vince was ignored over the issue of Bank deregulation that got us into this mess. He's sized up the situation and cast his eye over the best way to now bring us out of it at present that needs careful care. It is the reason that the Lib Dems have cut back on new spending commitments, even though they are dear to our heart. It's about the economy, stupid. First and foremost at this time it is about making that flow as smoothly as possible.

Of course the rapid budget is nothing new in Conservatives taking over from Labour they did just that in 1979. It was a radical shift to try and lift the UK out of recession, spending was cut and taxes were raised. Of course then the Government was fighting inflation, but the effect was falling aggregate demand and reduced growth. Unemployment quadrupled in those early years to the height of 3m. Then it lead to a full scale recession, now it could plunge us back into one.

Beware of the Leopard

Can the Tory Leopard really change it's spots? And more to the point is now the time that redecoration of the polka dots going to achieve it?

Iain Dale, recently returned from being civil partnered, led me to an article by Tim Montgomerie in today's Telegraph. Not since Lady Thatcher visited factory floors while looking to get elected in Dartford have the Tories appeared so keen to woo the hard-working classes. Fee Fi Fife glum their leopard smells the blood of a minister's son.

Tim talks about taking working class families out of tax because:

"Income tax is taken from many poor families, churned through an expensive bureaucracy and then returned in benefits."

and that

a clear majority of voters are ready for a refund from a political class that has squandered their money [to fund better public services].

He advocates this policy as being as radical and just and the aforementioned Lady Thatcher's sale of council homes. It will cost he says £44bn to take 14m people out of the tax system altogether. Fourteen Million!!! now I have to say that is radical! I'm all for removing people who can't afford it from their tax burden however is it just? Is it some pie in the sky figure? Is it achievable and what are the costs and benefits of it?

He advocates freezing public spending rather than keeping up with the £12 billion a year increase that Labour have been producing to make up for this shortfall. How is that going to be achieved? Ok £$7.7bn of that is what the increase to cover the wars in Iraq and Afghanistan is costing extra. So we still need to find £4.3 billion per annum, that's before taking into account potential world driven inflation, fuel poverty pay outs of the elderly having to meet an up to 40% increase, which surely would need to be found from somewhere to make up for the shortfall from less income.

So where is the public spending savings going to come from? And how? Tim did mention the reason for the taxes was allegedly to fund better public services. But that a lot of this has been lost in bureaucracy. Now obviously sorting out the level of waste through that bureaucracy which would led to some savings. But what about the rest? A lot of the funding has been going to improve infrastructure hospitals and schools. Will that programme be cut back.

Both my primary and secondary school had insufficient capacity while I was there. Both have finally had their refurbishment and improvement schemes funded since 1997. Before that there had been 18 years of Conservative control of Education funding and what happened, more upon more 'temporary' classrooms. At least the current lab technicians never have to do what I did in my brief spell back at my old school carry supplies out through the rain to the temporary science labs.

Yes the plan to take that many people out of taxation is radical. It is headline stuff. But what about the small print.

We saw 18 years of the Tories selling off the family silver. We now face many people in potential housing crisis and not enough social housing to catch all, thanks to Mrs T's radical scheme. We have bigger more centralise hospital services these days, people still need to be got there and the specialist posts filled by qualified consultants and specialists who need training. Our schools need to keep up with technology to empower our future generations to be ready for the world at large books and pens are no longer enough.

Let's not forget that while Labour have lost the way many of us remember why we gave them a chance in the first place. The Tories had forgotten about social structure, welfare, the people. They will still need looking after even after many of the lowest paid are taken out of tax. Is this a black hole on the horizon?