Robert Chote: A tax menu that's a little too sweet for most palates

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George Osborne, the shadow Chancellor, described the Forsyth commission's £21bn tax cut programme as a "menu of options" rather than a set meal to be eaten in one sitting. As menus go, it is heavy on ice cream and light on vegetables - it would add up to an annual giveaway worth more than £650 per family on average.

Appetising though that sounds, Mr Osborne says it would be reckless to go into the next election promising such a programme.

Opinion polls have persuaded the Conservative leadership that voters are very suspicious of tax cut promises. Many fear the required cuts in public spending would inflict too much damage on public services.

An additional anxiety is that big tax cuts would overheat the economy and push up mortgage rates. You would expect tax cuts to boost the underlying performance of the economy, but it is hard to predict by how much and how quickly. Remember the 1980s, when the Conservatives overestimated the underlying health of the economy. Tax cuts that they thought affordable helped to fuel an unsustainable boom.

Not surprisingly, Labour ministers were quick to play on both those fears when the Forsyth commission's report was released inadvertently on Wednesday night. So yesterday, far from promising a huge giveaway, Mr Osborne said more clearly than ever before that the Conservatives would go into the next election promising no net upfront tax cuts at all - not even the £4bn they promised in the last campaign.

Instead, Mr Osborne said that he would propose cuts in "family taxes" paid for by higher green taxes - marching straight on to territory the Liberal Democrats have been staking out. In addition, he sees scope to axe business tax breaks to pay for cuts in the headline rate of tax on company profits. He hopes that would help keep big firms in the UK.

All that would involve taking with one hand what he had given with the other. Net tax cuts would have to be paid for by "sharing the proceeds of growth", by which he means increasing public spending less quickly than the growth rate of the economy. That is something that Gordon Brown is already signalling that he will have to do over the next few years.

If Mr Osborne's "family tax cuts" were to mirror the income tax cuts proposed by the Forsyth commission, they would benefit families on middle and high incomes more than those at the bottom.

Offsetting those cuts with higher green taxes would be unlikely to change this pattern (although Mr Osborne is looking for green taxes that are less harmful to the poor). That suggests a change in direction from the "Robin Hood" tax and benefit changes we have seen to date under Labour.

It is hard to avoid the impression that the Conservatives would like to play down the tax-and-spend debate with Labour in the next election rather than highlight it.

A promise to shift from personal to green taxes would be something new. But with the Tories and Liberal Democrats now both supporting it, Mr Brown might well decide to get in first.

The author is director of the Institute for Fiscal Studies

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