Alexander Dashes UK Tax Cut Hopes

by Robert Lee, Tax-News.com, London

31 August 2010

A senior UK Treasury minister has said that present levels of taxation will have to remain in place for the duration of the five-year parliament in order for the government to achieve its deficit reduction plans.

The comments made by Danny Alexander, Chief Secretary to the Treasury, in an interview with the Observer newspaper on Sunday suggest that middle and higher income taxpayers will have a long wait to see their tax bills reduced as the coalition government sets about its plan to eliminate the structural budget deficit within five years.

"I think the tax burden is necessary as a significant contribution to getting the country's finances in order. So it will have to stay at that level for quite some time," Alexander told the paper.

While the chief secretary refused to confirm or rule out the possibility of tax cuts beyond the five-year target, he said that the coalition government's ultimate aim was to "rebalance" the tax system, both to make it "fairer" and 'greener' through more environmental taxation.

However, Alexander's comments could deepen a growing schism between Liberal Democrats on the left of the coalition and Conservatives on the right, with the latter group hoping that deep cuts in public spending could be used to cut the tax burden as well as the deficit.

The emergency budget, announced last June, did in fact include phased tax cuts on corporate income, and an increase in the personal income tax threshold, reducing the amount of tax that many workers will have to pay. However, these have been offset by a planned 2.5% increase in value-added tax from January and a 10% increase in the rate of capital gains tax for higher rate taxpayers, among other measures, effective from the date of the budget.

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