We needed a national economic plan but got a party manifesto instead - Beith

9.00.00am GMT Thu 10th Dec 2009

A 1% increase pay increase for workers will mean a real pay cut of 1.5% as the Treasury predicts RPI inflation to be 2.5% in 2010/2011.

Commenting on the Government's today's Pre-Budget Report, Berwick's Liberal Democrat MP Sir Alan Beith said:

"What we need is a national economic plan but what we got was a weak party manifesto for Labour.

"We have an unprecedented deficit and we need a sensible and coherent plan for dealing with it. The Chancellor has shied away from hard choices on spending and cuts. Instead of facing up to reality he is relying on fanciful growth forecasts.

"He could and should have used this Budget to make the tax system fairer, but instead people on middle incomes will be paying more tax while those at the top end continue to enjoy their loopholes.

"The bankers' payroll tax is the worst type of gesture politics and a gift wrapped invitation to tax avoidance.

"The hidden costs of this budget will be borne by low paid workers who face a cut in wages because the 1% pay rise is lower than the rate of inflation and an increase in tax for NICs.

"While we still need to stimulate the economy, doing more work dualling the A1 makes sense and the recent remarks on its safety record from the coroner add urgency. But again we have been ignored by the Government. This is another missed opportunity to make a real difference to the north east's infrastructure.

"This is a good budget for bingo and boilers but not much else."

The Chancellor has announced a further 0.5% increase in National Insurance in addition to the 0.5% increase announced last April for both employees and employers amounting to a 2% increase in tax on workers. Furthermore a 1% increase in NICs means that by 2011/12 people earning over £7,000 will pay 32% tax on their income (20% income tax plus 12% NIC)

The Government has assumed that the structural deficit has shrunk by 1% based on highly optimistic assumptions about growth and the output gap. In the 2009 budget the Chancellor assumed the cyclically adjusted surplus on the current budget in 2010/11 would be 6.4% - he has now decided it is actually 5.4%. Even with this assumption the Government is predicting the national debt will be higher in every year than was expected in the last budget.

The bank pay roll tax will only be levied until the 5th April 2010, making this tax wide open to avoidance for example:

• Multiple bonus payments

• Deferral of bonus payments until after April

• Relating bonus payments for years other than 2009

• Temporary increases in basic salaries

• Payments in benefits in kind

A 1% increase pay increase for workers will mean a real pay cut of 1.5% as the Treasury predicts RPI inflation to be 2.5% in 2010/2011.