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Chancellor says UK 'could afford tax cuts' as he tears up budget rules

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·Finance and policy reporter
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MANCHESTER, ENGLAND - NOVEMBER 07: Sajid Javid delivers a speech on the Conservative Party's plans for the economy on November 7, 2019 in Manchester, England. Sajid Javid, who holds the government position of Chancellor of the Exchequer in Boris Johnson’s Cabinet, set out the Conservative party’s plans to invest in priorities such as education, technology, and infrastructure as the engines of growth over the next decade. (Photo by Christopher Furlong/Getty Images)
Chancellor Sajid Javid unveiled the Conservatives' election plans on the economy in Manchester. Photo: Christopher Furlong/Getty Images

UK chancellor Sajid Javid said Britain could “afford some tax cuts” and see £20bn a year more spent on infrastructure if the Conservatives return to power.

The Tory minister tore up his predecessor’s strict budget rules in an election speech in Manchester on Thursday. He instead set out his own new rules, allowing more borrowing for road, rail and other infrastructure projects.

It comes as Labour set out rival plans to ramp up spending and also reset budget rules, sparking demands from business leaders for more detail from both parties on funding their pledges.

Javid promised his “first rule” was to maintain a balanced budget, but only on day-to-day spending. It would give him significant leeway to ramp up longer-term investment, which he only pledged would not exceed 3% of GDP.

He said: “If we stick to these rules that I've set out today...we can afford some tax cuts.”

READ MORE: Bank of England holds rate steady but two policymakers revolt

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Javid claimed the opposition Labour party wanted taxes to be as high as possible and believed people should be “punished” for doing well.

He also said his party had taken four million people out of income tax altogether, with the government raising the personal tax-free allowance in recent years.

It comes as Labour’s shadow chancellor John McDonnell made a similar pledge to “reset” the budget rules in a speech in Liverpool.

McDonnell said his party would exclude investment in infrastructure from its borrowing targets if it won the election, adding to government debt “but also adding to the government’s assets.”

READ MORE: Boris Johnson claims Labour under Corbyn ‘detest the profit motive’

The rents on new council homes and electricity produced by public sector energy agencies would be “set against the cost of servicing the debt issued to build them,” he said.

He vowed that the party would not let borrowing costs soar, promising a cap “in normal times” on debt servicing costs of 10% of Britain’s tax take.

The assets of industries Labour plans to nationalise, including rail, energy, water and mail, on the government’s balance sheet, according to the shadow chancellor.

READ MORE: Labour promises £150bn fund ‘repairing our social fabric’

McDonnell also set out new spending plans in the speech, saying Labour would plough an extra £150bn into “repairing our social fabric” after years of government cutbacks.

The cash would help upgrade schools, hospitals, care homes and council homes after years of cuts, he said.

He claimed the Conservatives “take us all for fools” with new spending plans from “the very people who have just inflicted nearly a decade of harsh, brutal and unnecessary austerity cuts.”

But Javid hit back, calling McDonnell and Corbyn “the anti-vaxxers of economic policy” and dubbing the proposals “fantasy economics.”

READ MORE: Think tank warns taxes will rise ‘whoever wins the election’

Rain Newton-Smith, CBI chief economist, said “getting our economy firing” should be a priority for the next government.

“Labour’s ambitions to eradicate regional economic inequalities and upgrading our networks to decarbonise are shared by business. The Conservatives new fiscal rules would allow the purse strings to be loosened to modernise our economic infrastructure,” she said.

But she added: “Any new spending must be planned responsibly to be sustainable, and more details will be needed on how both Labour’s and the Conservatives’ plans will be funded.

“Businesses’ main message is simple: so much more can be achieved by working with business, not against it.”