Clarke holds out promise of 20p tax - Business - News - The Independent

Clarke holds out promise of 20p tax

Chancellor implies last week's Budget was first step towards 'supremely credible' political target

CHANCELLOR Kenneth Clarke indicated late last week that his Budget was the first stage of a plan to go to the electorate in 1997 with a promise to cut the basic rate of income tax to 20p in the pound.

Going considerably further than in his speech on Tuesday, Mr Clarke spelt out the political purpose of his Budget: "What this Budget has done is to make our 20p target supremely credible. It is obvious that this government is delivering policies that will deliver it."

The underlying strategy of the Budget is to prepare the ground for a further cut in the basic rate in a year's time, after which the Conservatives could go to the country campaigning on a commitment to a 20p rate if they remained in power.

The Budget is being described in the whips' office as "a good slow burner". The example of Nigel Lawson's trio of Budgets in the late 1980s, in which he reduced the 30p basic rate of income tax first by 1p in 1986 and then by 2p more before the 1987 election, allowing the Conservatives to campaign on a pledge of a 25p rate is likely to prove irresistible to Tory party strategists.

However, speaking to Sunday newspaper journalists, Mr Clarke hinted that he would proceed more cautiously to the new 20p objective.

"Nigel began to cut taxes like there was no tomorrow," he said. What he wanted to replicate next year was the sense of well-being that people had in the late 1980s.

Mr Clarke's justification of the way he cut income tax - combining 1p off the basic rate with increased allowances and a widening of the 20p lower rate band by pounds 700 - also suggests that he will press for no more than a further 1p off the basic rate in the 1996 Budget.

Responding to charges that he should have concentrated the cuts in income tax on the basic rate, he said: "I've saved the taxcutting from all the political flak that 2p off would have got."

Mr Clarke claimed that any larger tax cuts would have failed the test of political credibility. "If we'd gone for bigger tax cuts, we'd have been accused of bribing the electorate."

Similar political considerations guided the Chancellor's decision not to raise other taxes outside the plans announced in the 1993 Budget, such as increasing duties on petrol and diesel by 5 per cent above the rate of inflation and those on tobacco by 3 per cent in real terms.

"I thought people would shout foul," he said.

Mr Clarke said that the forecast of 3 per cent growth next year was "sensible and defensible". Pointing out that it was only a bit higher than the 2.7 per cent average growth prediction made by independent forecasters, including the Treasury's own Panel, he said that the forecast was "not remotely an outlier".

The Chancellor remained confident that the slowing of the economy in 1995 was no more than a pause and that the conditions were there for growth to resume. "I just remember how quickly we got to 4 per cent last year."

Despite Mr Clarke's claim after the Budget that the growth forecast did not depend on base-rate cuts, many City analysts are convinced that interest rates will have to fall if the recovery is to be sustained. In a post- Budget forecast, economists at Goldman Sachs are now predicting growth of less than 2 per cent next year as companies supply demand from excess stocks. Because of this, they expect interest rates to fall by 1 per cent by the middle of next year.

Responding to scepticism about the scale and sustainability of the spending cuts, Mr Clarke said: "No one's identified any [departments] we've let off." The reform of social security, which accounts for a third of total spending, was "slow acting".

William Waldegrave, Chief Secretary to the Treasury, insisted that he had achieved real cuts. The drive against fraud was beginning to deliver, and the growth in the social security budget was slowing down. Defence had been cut by pounds 500m.

However, economists at Gold- man Sachs said that only pounds 500m of the overall reduction of pounds 3.2bn in public expenditure in 1996/7 came from "genuine spending cuts".

News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
PROMOTED VIDEO
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
Sport
David Moyes and Rio Ferdinand
FootballRio Ferdinand on why the former manager failed at United
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
News
i100
Life and Style
techIndian model comes with cricket scores baked in
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week