The economy is still far too fragile to withstand spending cuts and the best way to reduce the deficit is to go for economic growth, the TUC has told the Chancellor in its Budget Submission published today (Thursday).
There is still a huge risk of a double-dip recession, and unemployment remains a major blight, with continuing increases in long-term and youth joblessness, the TUC says. When the time is right, progressive taxation should play the major part in reducing the structural deficit.
The top priority should be policies that encourage economic growth and rebalance the economy away from an over-reliance on finance. These should include support for a new £5 billion investment institution modelled on the French strategic investment fund - Fonds Strategique D’Investissiment - able to take long term equity stakes in companies.
A low-carbon industrial strategy should be backed by the creation of a new Green Investment Bank and investment should be sustained in vital infrastructure such as high-speed rail links, says the TUC submission.
The TUC also argues strongly against cutting the public sector in 2010, saying that at times of economic downturn, people are relying on public services more than ever. Cuts to the public sector would also have an impact on the private sector, and also lead to huge public sector job losses. The submission also urges against freezing public sector pay.
TUC General Secretary Brendan Barber said: ‘This needs to be a serious and strategic Budget that meets three challenges. It has to do everything possible in the short-term to build on the very weak signs of recovery and avoid policies that will hasten a double-dip.
For the medium-term the Budget needs policies that will address the structural deficit once growth is established by making those who caused it in the first place bear the burden of putting it right - and that means taxing the super-rich.
‘And it has to help bring about a long-term rebalancing of the economy away from finance to a productive low-carbon future. Above all the Budget has to balance sound economics with policies for jobs and social justice that can undo the damage done by the recession to ordinary people.’
While unemployment has not risen as high as many feared, this may mean that it will be some time before it starts to come down as employers begin to have spare capacity, the submission says. The TUC’s great fear is of a jobless recovery in the private sector, coupled with rising public sector job losses as cuts start to bite.
Budget action on jobs should include support for short-time working, continuing the Future Jobs Fund and a £10 boost to Jobseeker’s Allowance, says the submission.
The TUC says there are six tax measures that can make a significant contribution to closing the deficit when the economy is growing once again. These are:
- a General Anti-Avoidance Principle - to give HM Revenue & Customs (HMRC) more powers to crack down on tax avoidance;
-a Tax Relief Cap - a limit on the allowances that those earning more than £100,000 a year can claim against tax;
-an Empty Property Tax, particularly designed to bear down on overseas owners of UK property keeping it empty for speculative reasons;
collecting tax that is due by improving HMRC staffing;
- abolishing the Domicile Rule; and,
- a Financial Transactions Tax - the TUC is a strong supporter of the Robin Hood Tax campaign but has also called for a unilateral tax on CHAPS transfers within the UK.
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