IRELAND’S EXPERIENCE of higher taxes and sharp public spending cuts offers a warning to the United Kingdom, which is facing £80 billion worth of cuts, Labour’s shadow chancellor Alan Johnson has warned.
“Less than a month ago, we saw Ireland slide back into recession. They went through deep cuts and substantial tax rises – applauded by most of those who are endorsing the approach of our government,” he said.
“But it hasn’t worked. This government is going down the same road, which risks reduced confidence, stunted growth and fewer jobs,” said Mr Johnson, as he outlined Labour’s economic and fiscal policies.
“Tough choices do have to be made. But without growth, attempts to cut the deficit will be self-defeating. A rising dole queue means a bigger welfare bill, and less tax coming in. The Tory plan is a huge gamble with growth and jobs,” he said.
The Conservative-Liberal Democrat coalition was perpetuating “three myths”, he insisted, particularly the spending record of New Labour during its years in office.
“Before the financial crisis hit, UK debt had been paid down from the 42.5 per cent we inherited in 1997 to 36.5 per cent of GDP – the second lowest in the G7.
“Almost every penny of borrowing before the crisis was used for investment, not day-to-day spending,” he said.
Saying that he would stick to Labour’s plans while in government to halve the size of the annual deficit over the next four years, Mr Johnson said taxes should play a bigger role by taking up 40 per cent of the strain, with 60 per cent coming from spending cuts, compared to the 30/70 balance planned by Labour’s last chancellor of the exchequer Alastair Darling.
In contrast, the coalition wants to raise one pound’s worth of new taxes for every four pounds saved in spending cuts, though there are many in the City and elsewhere who believe that this balance will be impossible to achieve.
Labour will support reviewing disability living allowance rules, which could remove hundreds of thousands from the list and put them on lower unemployment benefits, but such a measure “needs to be done properly”, said Mr Johnson.
Equally, Labour would not “stand in the way” of some changes to tax credits as long as they “do not endanger the good progress that has been made in reducing overpayments”.
Mr Johnson said Labour would firmly oppose child benefit changes and what it sees as “arbitrary changes” to housing benefits “that will cause real hardship”.