Desperate Osborne set to gamble on early tax cuts

Clegg adds to mounting pressure on Chancellor as economy shrinks

George Osborne is considering tax cuts for low and middle earners in his March Budget in an attempt to kick-start growth after figures showed that the economy is contracting.

The Chancellor will consider speeding up the Coalition's plan to raise the personal tax allowance to £10,000 a year by 2015. The move would help families in the "squeezed middle" and enable them to spend more – in the hope this would get the economy moving again.

Significantly, the Treasury has cleared a speech by Nick Clegg today in which he will urge Mr Osborne to go "further and faster" towards the £10,000 tax-free income goal. This was a key Liberal Democrat pledge at the 2010 election and is Mr Clegg's No 1 priority in negotiations with Mr Osborne about the Budget, which have just begun.

The personal allowance was raised from £6,475 to £7,475 this financial year and will go up to £8,105 in April, putting the Coalition on course to hit the £10,000 target by the next election and take more than a million people out of the tax net.

Mr Clegg believes his case for speedier action has been strengthened by figures from the Office for National Statistics yesterday, which showed that the economy shrank by 0.2 per cent in the final three months of last year. Ministers fear another negative figure for the first quarter of 2012, confirming Britain has entered a double-dip recession, which would put a huge question mark over their deficit-reduction strategy.

Although Mr Osborne would face Labour claims of opting for a "Plan B" by announcing tax cuts, he could argue that the move is in line with existing Coalition policy. Speaking to business and world leaders at the World Economic Forum in Davos, Switzerland, today, David Cameron will say: "This is a time to show the leadership our people are demanding. Tinkering here and there and hoping we'll drift to a solution simply won't cut it any more. This is a time for boldness not caution. Boldness in what we do nationally – and together as a continent."

The Prime Minister will say Europe's lack of competitiveness remains its "Achilles heel" and that it has failed to deliver the structural reforms it needs.

Mr Clegg, who will spell out his Budget demands in a speech to the Resolution Foundation think-tank, will say any tax cuts for the "squeezed middle" would have to be paid for by higher taxes for the rich, rather than higher borrowing or deeper spending cuts. "The pressure on family finances is reaching boiling point," the Deputy Prime Minister will say. "These families cannot be made to wait. Household budgets are approaching a state of emergency and the Government needs a rapid response."

Arguing that Britain "cannot afford not to do this", Mr Clegg will argue that the tax system must be rebalanced so it "rewards work and encourages ordinary people to drive growth". Mr Osborne will reject Liberal Democrat demands for a "mansion tax" on homes worth more than £2m. Instead, Mr Clegg will press the Chancellor to reform tax allowances and loopholes that favour the rich – such as rules allowing them to place expensive properties in companies so they pay only 0.5 per cent stamp duty when they are sold.

The gloomy figures from the ONS added to pressure on Mr Osborne to adopt a Plan B. Labour seized on remarks by Olivier Blanchard, chief economist at the International Monetary Fund, who suggested Britain had room to slow the pace of the cuts to avoid strangling the economy.

Mr Blanchard told the BBC: "If growth is really dismal then you may decide you're going to go a bit more slowly about the discretionary part of the budget ... to the extent that these countries are not under the gun from the markets, have plausible medium-term plans, they can slow down and it would help." However, ministers pointed to Mr Blanchard's comment that departing from the deficit-reduction plan might "lose credibility" in the financial markets.

Mr Osborne came under attack after he blamed the GDP figures on the eurozone crisis. Rachel Reeves, the shadow Chief Secretary to the Treasury, said: "[His] excuses are starting to wear thin. First he blamed the snow, then the Royal Wedding and now it's the eurozone. But Britain's recovery was choked off well before the recent eurozone crisis, and it was only exports to other countries that kept us out of recession last year."

News
people'It can last and it's terrifying'
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
football
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
News
people Emma Watson addresses celebrity nude photo leak
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
footballFeaturing Bart Simpson
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
Arts and Entertainment
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
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 General

Infrastructure Lead, (Trading, VCE, Converged, Hyper V)

£600 - £900 per day: Harrington Starr: Infrastructure Lead, (Trading infrastru...

Software Solution Technician - Peterborough - up to £21,000

£20000 - £21000 per annum + Training: Ashdown Group: Graduate Software Solutio...

Supply teachers needed- Worthing!

£100 - £120 per day: Randstad Education Crawley: Supply teachers needed for va...

Year 4 Teacher

Negotiable: Randstad Education Plymouth: Year 4 Primary Teachers needed Rand...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering