Tax cuts and tax havens: What Brown needs to learn from Obama

09 Nov 2008, by Adam Lent Guest in Economics

I wrote some time ago about the possibility of using tax cuts as a stimulus to the economy during recession and made particular comparisons with the scheme introduced in the States earlier this year. Obama also made economic stimulus through tax cuts a central plank of his campaign and he announced last week that he will be looking to introduce this very quickly.

Taking inspiration from America, the idea featured prominently in the TUC’s General Council Statement on the Economy issued in early September.

Now it appears that the Government is seriously considering introducing major tax cuts to stimulate the UK economy in the Pre-Budget Report (due some time in the next four weeks or so).

Two key points about this:

First, it is important, of course, that any cuts are focused heavily on low to middle earners not just for the sake of fairness but also because they will spend the extra cash rather than save it – a crucial factor if the cuts are to prove effective as a stimulus.

Second, the cuts do not have to be funded entirely (or maybe at all) through borrowing despite what this article and the Tories might be saying. Obama himself has made this clear. The President-elect aims to move very quickly to close down tax havens and introduce greater fairness into the tax system to generate the money required to offer the cuts. This is exactly the course of action Gordon Brown should also take.

Indeed, Obama’s willingness to move against tax havens offers Brown just the opportunity to build the sort of international co-operation that is necessary to take on the havens and repatriate lots of hidden cash. Brown’s endorsement would also help Obama as well: some of the world’s most notorious tax havens (Cayman, Isle of Man, Jersey, Guernsey) have very close economic and political ties to the UK. If the UK turned against the havens, they will have lost one of their closest allies.

The vague rhetoric is already there. Brown has written in an article today stating that he is:

looking forward to co-operating with the President-elect in building a new global society in which the advancement of people – their homes, jobs, savings and pensions – is always put first.

But there was also a sign of something possibly more practical when the Chancellor unexpectedly made clear his antagonism towards the Isle of Man’s tax haven activities last week at a Treasury Select Committee hearing.

Maybe tax justice is slowly beginning to make political and economic sense to our leaders.