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Osborne Rules Out UK Tax Cuts

by Robert Lee,, London

06 October 2011

The UK will not borrow the money required to fund temporary tax cuts, Chancellor of the Exchequer George Osborne has said, arguing that abandoning the deficit reduction plan is not the solution to the country's economic problems.

Speaking at the Conservative party conference, Osborne said that while he is a believer in permanent tax cuts "paid for by sound public finances", neither they nor increased public spending are something he will use to drag the UK out of the debt crisis. He said, "Right now, temporary tax cuts or more spending are two sides of exactly the same coin - a coin that has to be borrowed". Osborne is a firm believer that "borrowing is too much the cause of Britain's problems, not the solution".

The Chancellor added that increasing borrowing, even to stave off planned spending cuts or facilitate the temporary tax cuts suggested by the opposition Labour party, would involve jettisoning his deficit reduction plan. In addition, it would gamble with the UK's fiscal credit rating, and hazard current low interest rates. At the root of the problem is a debt crisis that the UK can not borrow its way out of, Osborne stressed.

However, in spite of the gloom, Osborne did attempt to emphasize the positive work that the government has done to signal that the UK "is open for business". These efforts include slashing business tax rates, and lifting over a million of the lowest paid out of income tax altogether. The tax system is being reformed and simplified, and changes are also being implemented to encourage multinationals to the UK.

While ruling out any temporary tax cuts, Osborne did announce one major tax measure in his speech. The council tax (local authority tax on individuals) freeze in place this year is to be extended for a further year. Of this, Osborne said: "When so many bills are going up, council tax can be the one bill that doesn't". It is estimated that this initiative will cost the Treasury in the region of GBP805m (USD1.2bn).

This is the second time Osborne has attempted to quash calls for tax cuts in recent days. Ahead of the conference, he told the Daily Telegraph that he did not "want to be a Chancellor who cuts taxes one year and has to put them up the next". He added: "A country with an almost double-digit deficit cannot add to its deficit in the middle of a sovereign debt storm to cut tax, presumably on a temporary basis, because you would have to then put it back up again to deal with the deficit. Tax cuts should be for life, not just for Christmas.” Tax cuts were not an issue for the present time, he added, with other economic issues up for discussion, including the eurozone crisis.

TAGS: tax | small business | economics | business | value added tax (VAT) | fiscal policy | budget | corporation tax | United Kingdom | multinationals | tax rates | tax reform | individual income tax

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