LEADING ARTICLE: Gordon Brown's early Christmas

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The Independent Online
Everyone loves tax cuts. Labour forgot that in 1992 and, as result, lost the general election. Gordon Brown will not make the same mistake again. As he explains opposite, Labour plans not to raise taxes but to cut the lowest rate from 20p in the pound to 15p or even 10p. There are two results: most people would get the same tax cut, but the lowest paid would feel the most benefit, so providing a fresh incentive for those on the dole to accept low-paid work.

In political terms, this is a bold move from the Shadow Chancellor. He achieves, at a stroke, a number of goals. Mr Brown has stolen the Tories' tax-cutting clothes, while at the same time making a gesture to Labour concerns of cutting unemployment and creating a fairer tax system. It will now be more difficult for the Tories to label Labour the tax-raising party. And, into the bargain, the policy also allows Mr Brown to recite the Nineties shibboleth of reducing welfare dependency.

But is it a sound policy? Can we afford it? Because Mr Brown spells out his long-term hopes rather than his immediate promises, he cannot fairly be accused of profligacy. But it would cost perhaps pounds 6bn to cut the lowest rate to 10p. This is even higher that the pounds 4-5bn that the Chancellor apparently wants to give away in his last-fling Budget. The markets think that figure is too high.

It also hard to square Mr Brown's ambitions with Labour's belief that state education and the NHS are underfunded and that the Government should encourage investment rather than consumption. All these problems cost money that must be found somewhere, probably from taxation. In short, it would be some time before a prudent chancellor could make Mr Brown's tax-cutting dream a reality.

That said, his proposal would help some people out of the welfare poverty trap. It is ridiculous that those on low earnings are so heavily taxed that it is hardly worth their while working. Two-thirds of jobs offered to the unemployed pay less than pounds 7,000 a year: the more of that they can keep, the more they will opt for employment over the dole.

There are, however, more effective ways to lift people out of the unemployment trap. Generous in-work benefits are more efficient than general tax cuts, which also throw money at the rich (although Mr Brown seems to hint that their tax gain might be clawed back). But extra welfare spending is off the agenda: Mr Brown knows it is a vote loser. So, largely for populist reasons, he has avoided the most efficient and cheapest option for getting people off the dole.

In short, Labour has spotted a political opportunity and developed an economic policy which, though too expensive to be fully implemented now, could prove popular and do something to bring more people into the jobs market. An expansion of the labour pool would also help to reduce the risk of wage inflation if the economy boomed.

But there is a whiff of political short-termism about Mr Brown's package. The danger is that Labour, fearful of being outflanked by a desperate government, could be as unrealistic in its ambition to reduce taxes as it traditionally has been about increasing state spending. The Shadow Chancellor must keep his feet firmly on the ground.