It’s common knowledge that the Treasury has to deal with the widening gap between it’s tax revenues and public spending in the pre-budget report this week. And with an election coming next year Alistair Darling will want to avoid the phrases “spending cuts” and “tax rises” in an attempt to retain some votes next summer. But the Chancellor still needs to act now as government borrowing already stands at a worrying £175bn.
Which reminds me of a recent Simpsons episode titled “Bart to the Future” where Bart sees a vision of his future, with Lisa installed as President trying to rescue America from it’s debt hole. I’d like to imagine Gordon Brown and Alistair Darling have had a similar conversation this weekend:
Lisa: If I’m going to bail the country out, I’ll have to raise taxes, but in my speech I’d like to avoid calling it a, “painful emergency tax.”
Milhouse: What about, “colossal salary grab.”
Lisa: See, that has the same problem. We need to soften the blow.
Milhouse: Well, if you just want to out-and-out lie … [Lisa doesn't object] Okay, we could call it a, “temporary refund adjustment.”
Lisa: I love it.
Milhouse: Really? What else do you love, Lisa?
Lisa: Fiscal solvency.
Milhouse: [disappointed] Oh. Yeah, me too.
So what is going to be our temporary refund adjustment?
How about a 2.5% hike in the interest rate students pay on their loans…. it’s like a tax on graduates, but without having to use the word tax. In goverment speak it’s “a 2.5 per cent real rate of interest on student loans” and the University Minister David Lammy has been giving his backing to the idea this weekend so you have to presume this is being seriously considered.
The beauty of this tax idea is that with Labour’s goal of 50% of school leavers going on to University, and an employment rate of around 70% in the UK it will effectively mean that most people joining the workforce for the first time will be paying this new tax. But it gets better, Labour knows it will be hitting the rich hard in the coming years but this policy wont affect them as they don’t need to take out student loans, and it’s traditional low income supporters wont mind either as there are means tested grants instead of loans.