March 7 (Bloomberg) -- Business Secretary Vince Cable attacked a lack of “compelling vision” in Britain’s government, saying efforts to narrow the budget deficit don’t amount to an economic plan for the future.
The comments, made in a leaked letter to Conservative Prime Minister David Cameron and Liberal Democrat Deputy Prime Minister Nick Clegg, were published as Chancellor of the Exchequer George Osborne said this year’s budget will include no “unfunded giveaways,” reiterating his refusal to deviate from his austerity plans.
“I sense, however, that there is still something important missing: a compelling vision of where the country is heading beyond sorting out the fiscal mess,” Cable, a Liberal Democrat, wrote in the letter, dated Feb. 8 and leaked to the BBC. Its authenticity was confirmed by his department yesterday.
The comments will add fire to a debate within the coalition government over the need for Osborne’s budget to do more to aid an economy that is struggling to avoid entering a second recession in three years. Osborne, a Conservative, repeated the need in a speech in London last night to tackle a deficit that’s still “too high” by not borrowing money to fund tax cuts.
With two weeks to go until his annual budget, Osborne is resisting calls from lawmakers on both sides of the House of Commons to ease the tax burden on households, motorists and the rich. “Credibility” will provide the best platform for economic growth, along with measures to improve the flow of credit to companies, he said.
“The days of unfunded giveaways are over and they’re not coming back in this budget,” Osborne said at a dinner hosted by the EEF, a manufacturing lobby group, according to remarks released by his office. “Everything has to be paid for.”
Cable said earlier yesterday that the Liberal Democrats are prepared to scrap the 50 percent top rate of income tax as long as the Tories agree to introduce new taxes on the rich.
The business secretary said his party favors the introduction of a “mansion tax” on the most expensive properties so the wealthy contribute “their share.” Homes worth millions of pounds, particularly in the south of England, are going untaxed under the current system, Cable said.
The Liberal Democrat push may face opposition from Conservative lawmakers, many of whom want to abolish the top income-tax rate while remaining opposed to extra taxes on real estate.
A report by the London-based Centre for Policy Studies this week suggested a mansion tax on homes worth more than 2 million pounds ($3.1 million) would only raise 1 billion pounds. Such a levy would hit hardest people whose homes had risen in value, rather than those with high personal incomes, according to the report.
Critics of the 50 percent income-tax rate, paid on personal income above 150,000 pounds a year, include London Mayor Boris Johnson, a Conservative. They argue it is a disincentive to entrepreneurs, encourages tax evasion and risks diverting investment abroad. The levy was introduced by the previous Labour government and left Britain with a higher marginal tax rate than the U.S., Germany and France.
Figures showing the U.K. budget deficit may be less than expected in the fiscal year ending this month have prompted calls from the Liberal Democrats for an increase in the threshold at which workers start paying income tax, while lawmakers in Cameron’s party are seeking tax cuts on fuel. The opposition Labour Party is demanding a sales-tax reduction to boost domestic demand.
Osborne’s budget cuts will see more than 700,000 public-sector jobs axed in the tightest fiscal squeeze since World War II, as the economy teeters on the brink of a second recession in three years. He said he’ll continue with plans to erase by 2017 the bulk of a budget deficit that equals 9 percent of gross domestic product, after Moody’s Investors Service said Feb. 14 that Britain may lose its Aaa credit rating.
In his letter, Cable also suggested that the government should use part of state-controlled Royal Bank of Scotland Group Plc to create a business lender to support exports and industrial projects.
Cable’s Labour Party opposite number in the House of Commons, Chuka Umunna, said the business secretary’s letter read more like the plea of a politician in opposition than by a senior member of the government.
“The secretary of state is essentially writing a begging letter to No. 10 Downing Street asking for them to adopt an industrial strategy,” Umunna told Sky News television.
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