Tories plan tax breaks for business to get people back to work

Business leaders would be offered tax breaks by a Conservative government to persuade them to recruit more staff, David Cameron will announce today as he puts plans to ease the "pain of mass unemployment" at the heart of his economic agenda.

The Tory leader will set out proposals that he hopes would encourage companies to hire new employees and dissuade them from laying off staff because of the recession. The Conservatives say the moves – which are expected to include a National Insurance payment holiday for new workers – can be justified by the resulting savings from unemployment benefits.

Gordon Brown also gave his clearest hint yesterday that the Government is preparing limited tax cuts in the pre-Budget report expected next week.

"What I am determined to do is to get all countries around the world trying to get their economies moving again, and one way you can do that is by putting more money into the economy by tax cuts or by public spending rises," the Prime Minister told GMTV. "That is something that we've got to look at in the next few weeks."

The Chancellor, Alistair Darling, is examining a range of tax-cut options although the Treasury insists that no decisions have been made. However, he looks likely to postpone tax rises for gas-guzzling vehicles and extend the £2.7bn of compensation for those who lost outwhen the 10p tax band.

Although both Labour and the Conservatives are preparing to present their tax-cutting credentials to the public, Mr Cameron will argue that the Government's plans are reckless because they will increase borrowing, while his party's planned tax incentives will carry no extra cost to the nation.

In a speech in London yesterday, the Tory leader insisted that it was crucial for Britain's economic health that the tax system was used to keep people in work. The Government could not stand by as unemployment grew, he argued.

He said: "That is the fatal thing that happens when you get a recession. Everyone is having to cut their costs and that can translate into waves of job losses. Each one is a statistic, but each one is a tragedy, and put them together and you end up with all kinds of social consequences that we then go on paying for as a society."

Mr Cameron appeared to distance himself from the reputation of previous Tory governments when he described the "trauma" of lengthening dole queues. He said his party had "learnt the lessons of history" and promised: "The Conservative Party will not stand aside and allow unemployment to ... ruin lives on a massive scale. We will not stand by while people lose their jobs."

But in his annual speech to the Lord Mayor's banquet in London, the Prime Minister argued that increasing public spending – even at the price of extra borrowing – was essential to breathe life into the economy. "We will maintain our essential public investments while continuing to increase the value for money of every pound spent," he said. "This is no time for the old approach of short-term spending cuts in a downturn that would hurt families and businesses today and damage the long-term productivity of the economy."

Mr Brown warned against a retreat into "pessimism, protectionism and retrenchment". He said: "As America stands at its own dawn of hope, so let that hope be fulfilled through a pact with the wider world to lead and shape the 21st century as the first century of a truly global society."

Nick Clegg, the Liberal Democrat leader, said: "If Labour brings in tax cuts ... we will all pay for them in the end. The Tories are hinting at small cuts which will do nothing to rebalance Britain's unfair tax system. They still think millionaires are the priority when it comes to tax breaks, not the low and middle-income families who need help now."

Tax and recession: The options evaluated

*Increasing pensioners' winter fuel allowance
For: Even with recent falls in wholesale prices, this year's fuel bills will soar. It would have to be implemented in any event.
Against: Not very green.
Sum up: Few could oppose it; most of the cash will probably be spent.

*Cutting VAT temporarily
For: Nothing would get us spending faster.
Against: It might only succeed in bringing forward our existing spending plans at the expense of later ones. The Japanese tried this to get out of their slump, with little sustained success. The EU won't allows us to cut VAT rate below 15 per cent (17.5 per cent now).
Sum up: A big cut in the price of a Porsche; no change in the price of a loaf.

*Tax cuts for small business
For: They're under more pressure from the credit crunch; they tend to have lower credit ratings and generate less of their own cash than larger companies.
Against: It still won't help them extract funding from the banks.
Sum up: A small help.

*A six-month break from corporation tax
For: The Conservatives like this because it offers help to business across the board, without complicating the tax code further.
Against: Many companies don't pay any corporation tax now.
Sum up: Could be better targeted.

*Increasing tax credits
For: Brownian orthodoxy; it would help "hard-working families".
Against: They're means tested, complicated, and many go unclaimed; open to fraud.
Sum up: Rising tax allowances would be more effective.

*Raising tax allowances
For: Simple to implement; tax thresholds are low now; favoured by experts.
Against: The rich gain too.
Sum up: Unglamorous but effective.

*Scrapping National Insurance payments for new workers
For: A Tory idea to lower unemployment, which has a disastrous effect on confidence and the property market.
Against: Isn't this just an employment subsidy of the kind the Tories used to ridicule "old" Labour for promoting?
Sum up: Ideologically confusing.

Sean O'Grady