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Cameron Faces Labour Call for U.K. Tax Stimulus in March

U.K. Prime Minister David Cameron
David Cameron, U.K. prime minister. Photographer: Scott Eells/Bloomberg

British Prime Minister David Cameron faced opposition calls to abandon his health-service revamp and cut sales tax as scrutiny of the coalition government’s deficit-cutting policy intensified before next month’s budget.

A temporary reduction in the 20 percent rate of value-added tax “is the fastest and fairest way to do a temporary boost to demand, to get confidence moving,” Ed Balls, the opposition Labour Party’s finance spokesman, told the BBC’s Andrew Marr Show yesterday. “We need some stimulus into our economy to get the economy moving, to get growth and jobs back.”

The attack on Cameron’s deficit strategy comes before he meets doctors to rebuild momentum in a program to streamline health spending, which former Labour Health Secretary John Reid called on him to scrap. That gathering coincides with an end to Parliament’s recess as focus shifts toward the contents of Chancellor of the Exchequer George Osborne’s March 21 budget.

“The one thing we can’t do now, and Mr. Balls still hasn’t learned this lesson, is to borrow even more,” Michael Fallon, deputy chairman of Cameron’s ruling Conservative Party, told the BBC’s Sunday Politics Show. “He wants to splash 12 billion pounds ($19 billion) on an unfunded VAT cut, which would have to be borrowed. That would mean even higher debt and that would mean, in the end, we’d lose our AAA rating.”

Moody’s Investors Service said on Feb. 13 that it could strip the U.K. of its top credit rating, citing risks from Europe’s debt crisis. Osborne said afterwards that the warning is a “reality check” serving as a reminder that the government can’t waver on deficit reduction.

Stimulus Options

“I am going to continue to press him to not bow to pressure from backward-looking credit rating agencies, but to do the right thing for growth and jobs,” Balls said.

Balls wrote in an article in the Sunday Times yesterday that lower sales tax would be the best way of adding stimulus, though alternatives could include a reduction in income tax or an increase in tax credits.

Conservative lawmaker David Davis said that the sales-tax proposal would be “populist” and ineffective.

“It actually won’t work because all the money would leak out of the country,” he said on the BBC’s Andrew Marr Show. “We’d spend all the money on Chinese goods.”

Balls’s comments on the tax threshold chime with the preference of Cameron’s Liberal Democrat coalition partners, who have been pressing for an increase.

Laws Interview

Former Liberal Democrat Treasury Minister David Laws will tell the BBC’s Newsnight program today that the threshold should reach 10,000 pounds as soon as possible, the Sunday Telegraph reported. The newspaper said he will call for the measure to be funded by a curb on tax-free pension contributions for higher-rate taxpayers and a levy on homes worth more than 2 million pounds.

A poll in the Sunday Times yesterday showed the Liberal Democrats with support of 7 percent, less than a third of the result they achieved at the general election in 2010. Labour led with 41 percent and the Conservatives had 37 percent in the poll by YouGov Plc, which questioned 1,772 adults Feb. 16-17. It didn’t give a margin of error.

Cameron will today meet medical representatives in an effort to reinvigorate his health reforms, which seek to devolve budget decisions to local areas in a bid to reduce costs. The revamp has faced opposition from doctors and cast a shadow over the future of Health Secretary Andrew Lansley.

Lansley’s Prospects

Lansley will keep his job for a further six months until Cameron reshuffles his cabinet, when he may be removed, the Mail on Sunday reported yesterday, citing unidentified people.

Reid, health secretary under Tony Blair from 2003 to 2005, told Sky News that the health revamp is a “bureaucratic mess.”

“The real question for David Cameron is, given this is getting deeper and deeper into political quagmire, does he abandon it or does he plough on,” Reid said. His advice to Cameron would be, “just get rid of this thing, do your U-turn and get out of it,” he said.

Foreign Secretary William Hague signalled that the Conservative-led government will press on with the program.

“The health service has to be reformed to cope with all the pressures of an ageing population,” he told the BBC’s Andrew Marr Show. “This bill helps us to make those administrative savings for the health service to run more efficiently. It’s part of saving 4.5 billion pounds out of administration in the next few years.”

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