Pre-Budget Report statement

Here's what Lib Dem shadow chancellor Vince Cable had to say in response to Alistair Darling's Pre-Budget Report statement:

What we needed was a national economic plan but what we got was a weak party manifesto. There has never been a deficit like this and we need a sensible and coherent plan for dealing with it.

    "The Chancellor has ducked the hard choices on spending and cuts. Instead of facing up to reality he has chosen to move the goal posts by relying on fanciful growth forecasts. He could have used this Budget to make the tax system fairer. But instead people on middle incomes will be paying more tax while those at the top end continue to enjoy their loopholes.

    "The bankers' payroll tax is the worst type of gesture politics and a gift wrapped invitation to tax avoidance. The hidden costs of this budget will be borne by low paid workers who face a cut in real wages because of the 1% pay rise - which is lower than inflation.

    "This is a good budget for bingo and boilers but not much else."

There's some interesting detail in the accompanying press release's notes to editors, notably …

2% increase in tax on workers

The Chancellor has announced a further 0.5% increase in National Insurance in addition to the 0.5% increase announced last April for both employees and employers, amounting to a 2% increase in tax on workers. Furthermore, a 1% increase in NICs means that by 2011/12, people earning over £7,000 will pay 32% tax on their income (20% income tax plus 12% NIC)

Highly optimistic growth assumptions

The Government has assumed that the structural deficit has shrunk by 1% based on highly optimistic assumptions about growth and the output gap. In the 2009 budget the Chancellor assumed the cyclically adjusted surplus on the current budget in 2010/11 would be 6.4% - he has now decided it is actually 5.4%. Even with this assumption the Government is predicting the national debt will be higher in every year than was expected in the last budget.

Government has made it easy for bankers to avoid bonus tax

    The bank pay roll tax will only be levied until the 5 April 2010, making this tax wide open to avoidance, for example:
    a. Multiple bonus payments
    b. Deferral of bonus payments until after April
    c. Relating bonus payments for years other than 2009
    d. Temporary increases in basic salaries
    e. Payments in benefits in kind

Real pay cut of 1.5% for workers

    A 1% pay increase for workers will mean a real pay cut of 1.5% as the Treasury predicts RPI inflation to be 2.5% in 2010/2011.