Tax and spend?

In this world, nothing is certain but death and taxes

Hmm. Tax cuts. So the Prime Minister is thinking about bringing in tax cuts so that we can all start spending again and re-energise the high street, the housing market and the economy in general and get us about of the financial mess we’re in (in time for the next election, perhaps?).

For once, the other political parties seem to be in agreement with him, at least on the need for tax cuts; they differ wildly in their plans to pay for them. Brown, in seems, wants to cut taxes but leave government spending where it is. The Tories would, as is their way, pay for and reduction in tax revenue with spending cuts, while the Lib Dems want to give us all a huge rebate and then mess about with pension contribution relief, green taxes and corporation tax relief to fund it.

So, in theory, we should all be shouting Hurrah, whatever happens we’re going to pay less tax. Except I don’t believe it’s as easy as that. Where the dickens is the money going to come from Mr Brown? You’ve already dipped into the coffers to nationalise Northern Rock and to rescue the other banks, quite apart from guaranteeing the savings of those who took advantage of Icesave’s attractive interest rates. I know we’re talking about finances and sums quite beyond anything I can really comprehend, but still just how much more money can there be to borrow?

And anyway, I’m not sure it’s do any good. Unemployment is at an 11 year high, even the veritable Mervyn King at the Bank of England says we’re in a recession that is likely to be longer and harder than we thought at first. Anyone who sensibly saved their money in a high interest account whether high street or internet based, against a rainy day is quite rightly concerned about whether their bank of choice is going to survive.

I’ve said it before: confidence about spending by the general populous isn’t really a function of how much money people have. It comes from how much money people think they have – quite different. The more headlines we see about unemployment, the more news we hear about friends and colleagues being made redundant, the more we hear about once-profitable organisations making losses, the more likely we are to hang onto our money – just in case.

Once consumer confidence is knocked, it takes a long time to build back up again, although it will happen. Just not for the foreseeable future.

But then maybe, just maybe, all these companies are taking the hits in one financial year, getting all the bad news, all the redundancies and the closures out of the way so that next year will show an improvement, however slight.

And once we start to see little bit of good news, then people will start to feel a bit better about things and confidence returns. It’s not much to go on, but it’s something.

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About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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