What we need is a fiscal boost

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The TUC didn't just issue a tax policy this weekend, it also issued an economic statement, the core of which says:

Low inflation is undoubtedly desirable, but so is growth and employment. Attempting the impossible - dampening external inflation by driving the UK economy into recession - would be an approach driven by economic dogma, not today's economic imperatives.

I agree with that: there is no way on earth that current food and fuel inflation is wage push driven so let's face the reality of the situation and manage it. As the TUC says this requires a package of fiscal measures to tackle the issues, or we'll end up with recession, or worse. The TUC package includes the follwoing:

With ordinary working people facing cuts in their living standards there is a need to put more money into peoples' pockets to stimulate economic activity and growth. This will be best achieved by rebalancing the tax system to help low and middle income tax-payers while making the super-rich and big companies pay a fairer share. This requires cutting down on the tax avoidance that the TUC has already exposed. The tax system has become less and less progressive in recent years and it is time once again to make the case for fair taxation.

There are various ways to help ordinary people through targeted tax cuts. The key way would be to cut income tax by reducing rates at the bottom or by raising allowances so that the low paid and middle earners receive a greater part of their pay tax free.

There is also a case for targeted reductions in VAT on goods and services that are essential to ordinary life such as energy - possibly time limited or replaced with a gradual phasing in of a more environmentally sensitive energy tax regime. However, the potential for cuts in VAT are seriously constrained by European Union rules which require a standard rate of 15 per cent with relatively few exceptions. As such, this may be the time for the Government to open an EU-wide debate about whether these rules should be temporarily loosened.

We note that the Government has already made some moves towards fiscal stimulus in the wake of the abolition of the 10p tax rate. This will amount to an extra £120 for those earning between £6,035 and £40,835 over the next six months. However, compared to the fiscal stimulus package announced in the United States which provided between £160 and £1,000 (or more for those with more than two children) in the form of a one-off rebate cheque to taxpayers, this is unlikely to act as a sufficient stimulus. It is notable that growth figures for the last quarter in the USA were much healthier than had been expected.

TUC research shows that very considerable funds are available to the Treasury to pay for such a package, and the short-term measures outlined above, through a comprehensive crackdown on tax avoidance, tax evasion and excessive tax planning by the wealthiest individuals and corporations. That is why we call for a minimum tax rate for earnings over £100,000 to pay for such a package. The current effective rate for earnings above that level is now only 30.8 per cent, as opposed to the actual 40 per cent rate which usually applies, once the wide use of allowances and reliefs is taken into account. A minimum tax rate of 32 per cent for earnings over £100,000, 37 per cent over £150,000 and 40 per cent over £200,000 would raise approximately £5 billion of extra revenue for the Treasury.

If some of the package of measures presented in this section and throughout the paper also needs to be funded through a short-term increase in government borrowing, then so be it. It is precisely at times of economic slowdown that governments should borrow to stimulate the economy, and if applied effectively will result in greater economic growth and tax income that can be used to reduce that borrowing as can further long-term measures to end tax avoidance and evasion. In this context, we welcome the Government's decision to review its fiscal rules which have limited borrowing to no more than 40 per cent of GDP.

There's more on this here. It's time for this real alternative to be given serious consideration. Brown is out of ideas. Osborne admits he is having to rethink and he is living in could cuckoo land if he thinks the voluntary sector are the answer to his prayers. In that case a Keynesian alternative is vital. Let's go for it. .