Ed Balls needs to rethink the growth plan he announced at Labour conference4

Ed Balls rightly pointed out that the Coalition isn’t doing enough to create the conditions for growth in his speech to the Labour Party conference in Liverpool yesterday. However, his five-point plan for growth failed to meet the challenge he identified.

The shadow chancellor proposed five measures aimed at boosting growth. I’ve listed them below, along with what he should have suggested instead:

1. Repeat the Bankers’ Bonus Tax to pay for 25,000 subsidised homes.

High taxes solve no problems and are already deterring financial companies from remaining in the UK. A better solution would be to pass legislation preventing the Government from ever wasting taxpayers’ money on bailing out rotten financial institutions again. Meanwhile, a cut in Capital Gains Tax would do more to encourage more homes to be built.

2. Bring forward expenditure on major infrastructure projects to increase aggregate demand.

The problem isn’t a lack of demand. The problem is excess debt and misallocated resources. The solution to this problem isn’t in higher deficit spending, it’s in lower taxes and greater market discipline in the economy. A cut in Corporation Tax is the best way to encourage sensible investment in the economy.

3. Reassign home improvements and maintenance bills from the standard to the reduced (5 per cent) rate of VAT.

Lowering VAT is a laudable aim, but introducing new complexity by targeting specific types of goods will only add to distortions and compliance costs. A better tax cut in the housing market would be to abolish stamp duty. This would encourage people to move to where jobs are and stop taxes from getting in the way of the right homes going to the right owners as people’s circumstances change.

4. Reverse the VAT rise, taking it back to 17.5 per cent.

The shadow chancellor is right to point out that the Coalition were wrong to raise VAT, and he’s right to call for it to be reversed. But a better way to stimulate employment and help the poor would be to increase the personal allowance so that the poorest keep more of what they earn and aren’t penalised for working.

5. Provide a one year break from National Insurance for small firms taking on extra workers.

The Coalition have already attempted a similar scheme and the response has been very underwhelming. A one-off gimmick is not going to get people back into work. Better to cut National Insurance permanently and better still abolish it. Not just for small firms but all companies. We need jobs wherever they might be generated, not just from companies in politically popular sizes.

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Rory Meakin
Rory is a Research Associate at the TaxPayers’ Alliance. Rory’s work is focussed on tax policy and economics, with a particular focus on tax simplification.
Follow @rorymeakin