Opposition Day — [20th Allotted Day]
Vincent Cable (Deputy Party Leader; Twickenham, Liberal Democrat)
The measures that I have described would be stimulating for the reasons that I gave: people on low incomes are more likely to spend. The right hon. and learned Gentleman's proposal could have the same effect, but it depends on how it is funded. That gets to the heart of what I am sure that Conservative Members will tell us in the next day or so. As I understand it, the Conservative party proposes funding the VAT cut through parallel cuts in Government spending. Although there may be a case for cutting Government spending generally, in the context that we are considering, the proposal would simply offset a stimulus with a reduction in spending. The right hon. and learned Gentleman must deal with the same problem that the Government have and that we have tried to tackle.
If there is to be a tax cut, it should operate under three simple principles. First, it must be substantial; a nominal cut has no effect in such circumstances. The package that I have described would cost something in the order of £16 billion. That is a large sum, but as a share of GDP it is not enormous and is certainly affordable within the parameters that I have described. The second principle is that a cut should be fair and equitable, which was where we started from. The third principle is that a cut should be funded. There are dangers in doing what I believe the Government propose, which is to have an unfunded tax cut, which I understand would be financed by Government borrowing. However, Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either.
We need a stimulus that will be funded and is seen to be fair, but which also makes sense in the context of the need to inject demand from people on low incomes, whose income standards are being squeezed. With that, Mr. Speaker, I thank you for the opportunity to introduce the motion and look forward to hearing the reactions to it.