PRE-BUDGET REVIEW A MISSED OPPORTUNITY - HANNIGAN

5.27.00pm GMT Wed 26th Nov 2008

Following the Chancellor's Pre-Budget Report Statement, Dominic Hannigan, Liberal Democrat Campaigner for Cardiff South and Penarth has welcomed the principle of higher taxation for the very wealthy, but has called on the Government to take the opportunity to help those on low and middle incomes.

In his statement, the Chancellor announced a temporary 2.5% cut in VAT, which is expected to cost £12.5 billion. The cut comes into operation on next Monday and will last until the end of 2009, when the 17.5% rate will be restored.

The Chancellor also admitted that borrowing would rise to £118 billion by next year, and would stand at 8% GDP in two years, the same level as in the recession of the 1990s.

He also announced that the rise in the tax threshold introduced to help those who lost out as a result of the Government's decision to abolish the 10p tax rate, would be made permanent and increased from £120 to £145.

The Chancellor announced plans to introduce a higher tax rate of 45% for those earning £150,000 or more from 2011. He also announced that fuel duty and duty on tobacco and alcohol would rise to make up for the fall in VAT receipts, and there would be an increase of 0.5% in National Insurance contributions, though the threshold will be increased to £20,000.

Commenting, Dominic Hannigan, Liberal Democrat Campaigner for Cardiff South and Penarth, Lembit Opik said:

"Everyone knows that the tax system is inherently unfair, even the Government. The system basically favours the rich and harms the poor. This could have been a great opportunity for the Government to re-balance the tax system in favour of those on lower and middle incomes. I'm glad to see the Chancellor has taken some steps to increase the percentage tax on the very wealthy. It's just basic fair play to do that. Unfortunately, the Government has also announced an increase in National Insurance. This will most affect the less wealthy - the very people least in a position to pay the extra.

"People in Cardiff South and Penarth have endured a year of rocketing fuel, transport and food prices and many are still out of pocket following the government's decision to double the starting rate of income tax. A cut in VAT is welcome and will put some money back into the economy, but the best way to help people on lower and middle incomes is to put as much cash as possible back in their pockets. A 4p cut in the basic rate of tax would be a simple and fair way to give people the help they need during these trying times. I hope the Chancellor will take on board this suggestion, in the interest of social fairness and economic recovery.

"Longer term, to make tax cuts lasting, they have to be funded. I think we should shift the tax burden onto pollution and end the tax perks and loopholes enjoyed by the highest earners. Then we really do help the less wealthy and the environment all in one go."

Ends/diwedd

Notes to editors:

Pre Budget Report at a glance:

Tax, spending and borrowing overview

• Overall fiscal stimulus package worth £20bn by April 2010

• Tax revenue from financial sector down 35% this year

• Spending worth £3bn on capital projects to be brought forward from 2010-11

• Borrowing to rise to £78bn this year, and £118bn next year

• Debt as a proportion of GDP to peak at 57% in 2013-14

• Government to resume borrowing only to invest by 2015-16

• Confirmed abandonment of Gordon Brown's "golden rule". Darling said it would be "perverse and damaging" to apply it in current circumstances

Main tax proposals

• VAT to be cut to 15% from Monday until Dec 31st 2009 (one-off cost over 13 months: £12.4 billion)

• The increase in income tax allowances announced earlier this year (i.e. 10p rate compensation) to be made permanent. Allowances to be raised, so this will be worth £145 a year to 22 million basic-rate taxpayers

• National insurance to rise by 0.5% on all rates of national insurance from 2011 (raises £4.4 billion per year (2011-12))

• Top rate of income tax to rise to 45% on those earning more than £150,000 - the top 1% of earners - from 2011 (raises £670 million per year (2011-12))

Growth

• Output to fall for first two quarters of 2009 before starting to recover

• Growth for 2009 forecast at between -0.75% and -1.25%

• Growth for 2010 forecast at between 1.5% and 2%

Bank lending

• Seven UK banks to get funds worth a total of £1bn to make lending to firms easier

• Another £1bn to be available for lending to small businesses through a temporary small-business financing scheme

• Another £1bn available to support businesses through the export credit guarantee department

Environment, energy and transport

• The introduction of the new VED bands to go ahead, but they will be introduced more gradually. Next year the maximum increase will be £5. From 2010 the maximum increase per car will be £30, not up to £90 as planned

• Air passenger duty to be reformed so that longer journeys are charged more. Reform to make it greener (charge per plane rather than by passenger) scrapped

• Another £150m to be made available to fund energy-saving measures

• Government to consider using legislation to force energy companies to pass on savings when oil prices fall

Housing

• Government to seek EU approval for a scheme that would provide guarantees for mortgage-backed securities

• Lenders have agreed to wait three months after homeowners fall into difficulties before seeking repossession

• Limit at which homeowners can apply for help with mortgage payments if they lose their jobs to be raised to mortgages worth £200,000

• More than £1bn to be made available to increase funding for social housing

Unemployment

• Gordon Brown to chair a new national employment partnership to help the unemployed find work

• Total package of measures to help the unemployed worth £1.3bn

Benefits and credits

• Planned increase in the child element of the children's tax credit to be brought forward

• The planned child benefit increase, from £18.80 per week to £20 per week, will come in from January, not April as planned

• Pensioners to get a one-off payment worth £60, on top of their £10 Christmas bonus, in January