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George Osborne: We had to deal with 'massive mess' left by Labour
23 Jun 2010Chancellor George Osborne defended the Budget as "tough but fair" today as he accused the previous Labour government of leaving the economy in a "massive mess".
Mr Osborne said everyone was being asked to pay a contribution in order to help curb the deficit.
"The damage to the economy, the people losing their jobs, will come if we do not sort out our problems in this country, and the welfare bills have got out of control," he told GMTV.
"The hole in the public finances was so great and the debts were so large, and people at home know, if you have got a debt problem, you have got to deal with it."
Mr Osborne's remarks were made as Treasury Chief Secretary Danny Alexander defended as "unavoidable" a rise in VAT to 20% announced in the Budget after it exposed strains in the coalition with the Conservatives.
Mr Alexander said the VAT move - which his party vigorously opposed in the General Election campaign - was the only alternative to still deeper spending cuts.
Challenged on GMTV over the increase, Mr Osborne said: "When we got into Government, the hole in the budget was bigger than we thought.
"We asked an independent expert to look at it and they agreed, and also around Europe, this debt problem is getting worse and worse, people see it on their telly, they see it in Greece, they see it in Spain..."
Mr Osborne said he did not want to take measures such as raising VAT or freezing child benefit.
"It is not because I want to do these things, it is because this country faces a very, very serious debt problem," he said.
He added: "The Labour Party were in charge of this country for 13 years and they left a massive mess for the economy, a massive mess with the debt."
Mr Osborne's remarks come after he announced an emergency package of tax increases and spending cuts yesterday on a scale unseen in decades.
A massive £11 billion benefits squeeze was also included in an harsh austerity package which he said would clear the structural deficit by the time of the next general election in 2015.
More pain will follow in the autumn spending review when Government departments whose budgets are not ring-fenced face cuts in the order of 25%, he warned.
He sought to soften the blow by restoring the state pension link to earnings from next year, raising income tax allowances for basic rate payers and a £2 billion boost for poor families.
However the VAT measure sparked deep unease among Liberal Democrats as Labour accused them of acting as "fig leaves" for a Budget which would still hit the most vulnerable hardest.
Prime Minister David Cameron and Liberal Democrat Deputy PM Nick Clegg will appear on television together today to show a united front.
But Colchester Lib Dem MP Bob Russell issued a stark warning to the leadership, declaring: "I can't see myself at the moment voting for the Budget."
He said he had told voters less than 50 days ago that he was opposed to a VAT rise - which was predicted as a potential "Tory bombshell" in a major party poster campaign.
Other left-wing Lib Dems admitted "unease" - including among ministers - but played down the prospect of a revolt, insisting MPs had accepted the need for stark action to cut the deficit.
"It is not a joyful Budget but looking back it was the right thing," said Tim Farron - pointing to the inclusion of Lib Dem ideas on income tax thresholds and capital gains tax.
Mr Alexander, who was applauded when he addressed a meeting of the party's MPs after the statement, denied misleading voters.
"What we actually said in the election was that we would seek to reduce the deficit through spending but only if, on the grounds of fairness, we needed additional tax rises would we seek one.
"And on VAT, we have a choice: if the structural deficit is £12 billion larger than the previous government told us - do we fill that with yet more spending cuts or do we choose a tax measure?
"We want to see income tax thresholds rise to help with incentives to work. That means VAT was the unavoidable choice," he told BBC2's Newsnight.
Acting Labour leader Harriet Harman had sought to exploit potential divisions within the coalition when she responded to the Budget in the Commons.
"How could they support everything they fought against? How could they let down everyone who voted for them? How could they let the Tories exploit them?" she demanded.
"This is a Tory Budget that will throw people out of work, that will hold back economic growth and will harm vital public services."
Mr Osborne said that, having inherited from Labour the largest budget deficit in Europe bar Ireland, the new Conservative-Liberal Democrat coalition had been forced to take drastic action.
"This Budget is needed to deal with our country's debts. This Budget is needed to give confidence to our economy. This is the unavoidable Budget," he said.
Child benefit will be frozen for three years, tax credits cut for families on more than £40,000, housing benefit capped and disability living allowance claimants face a new medical assessment.
Future benefit increases will be linked to a lower measure of inflation, public sector pay frozen for two years for those earning £21,000-plus and banks face a £2 billion-a-year levy.
Corporation tax is to be cut from 28p to 24p over the course of the Parliament and capital gains tax on non-business assets raised - but only to 28p, lower than anticipated.
Alcohol, tobacco and fuel were spared an immediate squeeze but Mr Osborne warned of fresh financial measures in the autumn to tackle binge and underage drinking.
A spending review - to be announced on October 20 - will cut departmental spending by a further £17 billion on top of the £44 billion planned under Labour.
British sources insisted last night that there was no dispute with the US over the decision to accelerate the austerity measures - following a phone call between Mr Cameron and Barack Obama.
The Prime Minister and President were said to be "on the same page" over the strategy ahead of a summit of G20 leaders in Canada this weekend.
Mr Obama wrote to world leaders last week expressing concerns that withdrawing fiscal stimulus too quickly could damage fragile recovery and spark a fresh recession.
Reader views (19)
@ Michaella, London UK
I absolutely concur, she was just embarrassing. She prattled on like some mad bag lady in the street.
That's the best Labour has got? Ha, ha, ha!
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@ Duncan, Kent
Nothing like an ignorant sweeping statement is there?
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@ Mark, Southwark
Love it!
- Frank, Home Counties, England., 24/06/2010 11:28
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do away with trident cut overseas aid make absent fathers pay for their children,cut family allowance down to two children.that should be good for a start and stop getting our troops killed by trying to be the worlds policeman lets be like switzerland and keep our nose out of things which our not our concern and then you wont have radicals all trying to do this country harm
- anon leicestershire, leicestershire, 24/06/2010 10:08
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Norman Lamont increased the then standard rate of VAT @ 15% to 17.5% to make up the shortfall in revenue from the failed Poll Tax fiasco and the introduction of Council Tax. Of course there were the usual howls of furious outrage from the Labour opposition, but when Labour got the chance to inflict thirteen years of their idea of running a successful economy on us they never felt the need to reduce the rate to 15% once again. Besides, how many readers remember the 25% VAT for rate so-called luxuries brought in by Dennis Healey in the 1970's?
- Master Bater, Birmingham, UK, 23/06/2010 17:21
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Duncan, even if they paid every penny there are still not nearly enough super-rich to cover more than a small fraction of government spending. You're talking about a select few. The money they cheat us out of is dwarfed by the money the government wastes - 12 billion on 1 failed NHS IT project for example (over twice what the 50% tax increase netted). If we're interested in practically balancing the books, rather than being ideological, the priority has to be cutting back on what the state is squandering.
- Kevin T, Beckenham, Kent, 23/06/2010 12:44
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@ James
It is that simple, although under Labour the tax system was used as a weapon of aribitary wealth distribution. Even before the banking crisis Labour's spending was in excess of revenues.
Do you remember when income tax rates were 83% and on top of that there was innvestment income surcharge of 15% meaning that some people were paying 98% on their income? The vast majority of them went away and, partially, as a result VAT went from 8% to 15%.
They started to return in the mid 80s when the highest rate of tax was 40%. Tax is creeping up again the headline rate will be 52% but some people will actually be paying 62% on parts on their income so how much more do you need to push them before they start moving overseas again. It's happening now in the corporate sector.
- Mark, Gerrymandered African Republic of Southwark, 23/06/2010 12:35
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Stephen
I work in the city and know how much they dont pay its middle earners like me who pay the most tax as a percentage of their incom not the uber rich.
Take of your blue spectacles wake up smell the coffee tax evasion is a massive industry for the accountants and they help the mega rich away wil billions and I mean billions in unpaid taxes.
How many self empoloyed are conning the tax man almost everyone i know is and always has done.
Your anaolgy is completly imappropriate and shows the falsehood in your arguement.
Yes Tony Blair is conning the tax man as i am very sure George Osborne and David Cameron have done in their time you dont get that reach by being honest.
- Duncan, Kent, 23/06/2010 12:28
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@ Mark
Nice to pat oneself on the back, but you know if it was that simple it would work… but when some fail or in your logic wasn’t there, it was left for the poor or the middle order to pick up the pieces… who have no chance to escape aboard to ‘friendlier’ atmospheres.
Reminder to those - Not all that are helped by the state are scroungers and of course we have those hidden factors (loopholes) & the Rich remains one step ahead at every avenue…
- James, London, 23/06/2010 12:07
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The budget looks OK to me, but nothing is certain. I am, unfortunately, a heavy user of the NHS, but despite that I don't think it, or Overseas Aid, should be ringfenced. Every department should take some sort of hit.
- Jose Luis, London SW18, 23/06/2010 11:54
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@ Mark, Gerrymandered African Republic of Southwark
Flippin Heck man, the window into your mind is fascinating !! lol
- ishi, London, 23/06/2010 11:45
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to Mark of Southwark
Couldn't think of a better explanation or delivery - outstanding mate !
- Andy Woodhead, London, ENGLAND, 23/06/2010 11:38
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Part 3
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works.
The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.
Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
- Mark, Gerrymandered African Republic of Southwark, 23/06/2010 10:56
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Part 2
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid £2 instead of £3 (33% saving).
The seventh now paid £5 instead of £7 (28% saving).
The eighth now paid £9 instead of £12 (25% saving).
The ninth now paid £14 instead of £18 (22% saving).
The tenth now paid £49 instead of £59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
"I only got a pound out of the £20 saving," declared the sixth man.
He pointed to the tenth man,"but he got £10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get £10 back, when I got only £2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"
- Mark, Gerrymandered African Republic of Southwark, 23/06/2010 10:54
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Part1
Suppose that every day, ten men go out for beer and the bill for all ten comes to £100 ... If they paid their bill the way we pay our taxes, it would go something like this...
The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7..
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that's what they decided to do..
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by £20". Drinks for the ten men would now cost just £80.
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected.
They would still drink for free. But what about the other six men?
The paying customers?
How could they divide the £20 windfall so that everyone would get his fair share?
They realised that £20 divided by six is £3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
- Mark, Gerrymandered African Republic of Southwark, 23/06/2010 10:50
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Kevin if the super rich actually paid tax then these problems would simply not exist
- Duncan, Kent, 23/06/2010 10:08
Duncan, so easy to blame the super rich like Hitler blamed the Jews, the super rich are just scapegoats to people like you. You need to stand on your own feet and not rely on handouts from the super rich who I suspect pay more tax than you do. And remember the super rich can choose where they live. And the super rich can't make an impact on a deficit of $150 billion a year, there simply aren't enoough of them.
And where is Gordon Brown, are we still paying him £65,000 a year as an MP?
However Duncan if you classify Tony Blair as super rich, I'm right with you and all the champagne socialists.
- Stephen C, London, 23/06/2010 10:32
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Kevin if the super rich actually paid tax then these problems would simply not exist
- Duncan, Kent, 23/06/2010 10:08
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Did anyone really expect anything else from same old same old Harridan Harmful ? The new cabinet is not even two months old and still getting their feet under the table so they should have repaired 13 years of almost irretrievable economic and social damage caused by their predecessors by now ? I think it's a well thought through budget with everyone contributing towards recovery and the bank levy is fair - after all, they were major contributors to the causes of the horrendous financial situation ! By the way, before anyone jumps to conclusions, I did not vote for any of the major parties at the last election but, as an Englishman, I want to see my country on the road to prosperity once again and do not mind contributing towards it so long as it is fairly apportioned............
- Andy Woodhead, London, ENGLAND, 23/06/2010 09:55
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I think it was an excellent budget but it should have cut all benefits to those scroungers that bleed our system dry.
While I was prepared to listen to the opposition with Comrade Harperson screaming and nagging to embarrassing levels where was Brown? The architect of this utter appalling mess his socialist policies left us in, is nowhere to be seen! He is an utter coward!
Brown should be put on for criminal recklessness to our economy.
- James from Camden, London, 23/06/2010 09:46
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I was appalled by Ms Harman's rude aggressive and vulgar behaviour in the House of Commons yesterday.
Shame on her!
- Michaella, London UK, 23/06/2010 09:21
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Where would Harman have got the money then to pay back the debt her party left? Tax rises, tax rises and more tax rises. And don't give me any nonsense about taking it all from the rich. Ordinary people would have had to pay the brunt, just like we always do. If it was up to me, every member of the Labour party would have their home, their bank accounts and all their possessions taken off them to start paying it off.
- Kevin T, Beckenham, Kent, 23/06/2010 09:08
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