The re-election of a Labour government with more debt, waste and taxes will bring us a new recession. Labour will kill the recovery with their jobs tax – so we’ll cut Labour’s waste to stop it. And we’ll cut Labour’s debt to stop higher interest rates and your mortgage going up. We’re all in this together, and we need new energy and fresh ideas to get Britain working for everyone.
Stop Labour’s jobs tax. Labour plans to raise the Employees’ National Insurance Contributions (NICs) for everyone earning over £20,000 by 1 per cent. We will stop this increase altogether for everyone earning under £35,000. Compared with Labour’s plans, everyone liable for Employees’ NICs earning between £7,100 and £45,400 – which is seven out of ten working people – will be up to £150 better off a year under the Conservatives. Lower earners will get the greatest benefit as a percentage of their earnings. Nobody will be worse off as a result of these changes.
Ensuring macroeconomic stability
Cut waste. Labour’s own plans have identified billions of pounds of waste. Instead of cutting this now, they would wait a year and then increase tax at the end of it. This is why they will kill the recovery. Two of Labour’s own advisers – Sir Peter Gershon and Dr Martin Read – advise us that government can save £12 billion in 2010-11 without damaging frontline services. So we will cut the waste so we can stop Labour’s jobs tax.
We will take immediate action to start cutting Government waste, with the plan to spend a net £6 billion less in 2010-11 than Labour would, less than £1 in every £100 the government spends. Gershon and Read have advised that it is possible to save £12 billion from departmental spending without affecting the quality of frontline services. Of this, around half will be found within the NHS, DfID and the MoD – these savings will remain within the departments. The other half will be used to reduce the deficit this year, and from next year will be used to stop Labour’s jobs tax – the rise in NICs.
Reduce the deficit. Unlike Labour, we have set out a credible plan to eliminate the bulk of the current budget deficit over a Parliament. We will make real terms annual increases in health spending and meet our commitment to increase international development spending to 0.7 per cent of GNI, but cuts will be made in other areas of government spending. We will also:
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Introduce a one-year public sector pay freeze in 2011 (which will not include the one million lowest paid workers);
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Hold a review to bring forward the 2026 date at which the state pension age starts to rise to 66 – to no earlier than 2016 for men and 2020 for women. It is estimated that the increase in the age for both men and women will save £13 billion per year;
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Stop tax credits to families with incomes over £50,000;
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Cut spending on Child Trust Funds for all but the poorest third of families and families with disabled children;
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Cap the biggest public sector pensions above £50,000; and
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Introduce a 5 per cent pay cut for Ministers, followed by a 5-year freeze, and a 10 per cent reduction in the number of MPs.
Higher productivity. We will reform central government and public services to deliver higher productivity and better value for money for taxpayers. We will seek productivity improvements that match the best of the private sector.
Value for money. We will improve financial discipline by introducing a fiduciary obligation to taxpayers in civil service employment contracts, strengthening the role of finance directors within government and implementing clear financial performance targets for senior civil servants.
Create a more balanced economy
Restore a savings culture and encourage retirement savings. We will:
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Work with employers and industry to introduce auto-enrolment into pensions for those on middle and lower incomes;
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Reward those who have saved for their retirement by ending effective compulsory annuitisation at the age of 75;
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Take 9 out of 10 first-time buyers out of stamp duty permanently by raising the threshold for them to £250,000;
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Reverse over the longer term the effects on pension savers of the 1997 abolition of the dividend tax credit for pension funds; and
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Promote responsible consumer finance by creating a powerful Consumer Protection Agency; launch Britain’s first free national financial advice service; cap excessive store card interest rates; and, ensure that consumers are given much clearer information on credit card bills.
Only millionaires will pay Inheritance Tax. Over 4 million households are in Gordon Brown’s Inheritance Tax trap. We will raise the Inheritance Tax threshold to £1 million, taking the family home out of Inheritance Tax altogether for the vast majority of people. We will pay for this by a levy on non-doms.
Recognise marriage in the tax system. We want to make Britain the most family friendly country in Europe. Our policy will take the form of a partially transferable personal allowance for 4 million married couples and civil partnerships. One member of an eligible couple will be able to transfer £750 of their tax free personal allowance to their partner in order to reduce their partner’s income tax bill. This will be limited to basic rate taxpayers and is therefore worth up to £150 a year per couple at the 20% rate of tax. This will be paid for using some of the revenues from a levy on banks that will raise more than £1 billion. The remaining revenues will be used to reduce the deficit. This is a progressive tax measure, with two thirds of the benefits going to families in the lower half of the income distribution. The biggest gains as a percentage of income go to households in the third decile of the income distribution.
The 50p tax rate. We do not regard the new 50p tax rate as a permanent feature of the tax system, but we will not abolish it for the rich while at the same time asking many of our public sector workers to accept a pay freeze.
Stop Labour’s jobs tax for employers. Labour plan to raise Employers’ NICs by 1 per cent for every business paying anyone over £5,700. This is a tax on jobs that will undermine the recovery. We will raise the secondary threshold at which employers start paying NICs by £21 a week, saving employers up to £150 for every person they employ relative to Labour’s plans. This will reduce the cost of Labour’s tax rise on employers by more than half.
Reform of the banking system
Reform regulation of the system. We will create a strong and powerful Bank of England with authority to ensure financial stability. We will make the Bank of England responsible for macro-prudential regulation, judging and controlling risks to the financial system as a whole. We will create a powerful new Financial Policy Committee within the Bank, working alongside the Monetary Policy Committee, which will monitor systemic risks, operate new macro-prudential regulatory tools and execute the special resolution regime for failing banks. The failed Financial Services Authority will be abolished.
Ensuring depositors are properly protected from risky activities. We will empower the Bank of England to impose higher capital requirements on high risk activities, such as large-scale proprietary trading carried out by banks that also take retail deposits.
Crackdown on bank bonuses. The money that taxpayers have provided to support bank lending must not be diverted into significant cash bonuses. The cash that would have been paid out in bonuses should be put onto banks’ balance sheets, explicitly to support new lending. This should be a condition of continuing to receive taxpayer guarantees and liquidity support.