Osborne rejects borrowing to pay for tax cuts

Chancellor George Osborne insisted yesterday he would not borrow money to pay for tax cuts.

Mr Osborne said that in the current economic circumstances it was “not worth running the risk” of higher interest rates by making tax cuts in the hope of stimulating economic activity.

His comments, to the House of Commons Treasury Committee, will be seen as a dig at his Labour shadow Ed Balls, who has called for a temporary cut in VAT to put money in shoppers’ pockets and restore demand to the economy.

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He is also coming under pressure from Conservative backbenchers and London mayor Boris Johnson to reverse the 50p top rate of income tax on earnings over £150,000 introduced by his Labour predecessor Alistair Darling.

Mr Osborne indicated that he might be ready to make cuts to specific taxes, so long as they are balanced by spending reductions and leave the Government’s budget unchanged overall.

But he insisted MPs would have to wait until his Budget on March 21 to hear precise details.

Answering questions on his Autumn Statement last week, which painted a gloomy picture of Britain’s prospects over the coming years, Mr Osborne insisted that the UK economy had not been permanently damaged by the banking crisis and recession.

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“There has been no evidence to suggest permanent damage to the British economy from what has happened,” he told the cross-party committee.

Asked whether he would be ready to contemplate tax cuts if they could be funded by spending cuts elsewhere, Mr Osborne told the MPs: “Within the spending review totals, within the tax and spending totals we have set out, I have been perfectly prepared over the past couple of fiscal events to reduce some taxes or increase other taxes, to reduce spending or increase spending in different areas.

“What I am not prepared to do is borrow additional money in a discretionary way to fund a tax cut, because I simply think the risk you would be running with Britain’s fiscal credibility at a time like this is not worth it.”

A tax cut of the kind being advocated from some quarters would inject only around £1bn to £3bn into the economy, while risking a one per cent rise in interest rates that would cost mortgage-holders £10bn and the Government £30bn, he said. “I don’t think it’s worth running the risk.”