Ed Balls suggests Budget tax cut options

Shadow chancellor Ed Balls: "A VAT cut is the fastest and fairest way to do a temporary boost to demand to get confidence moving"

Labour shadow chancellor Ed Balls has called for "decisive action ... to boost growth", offering suggestions for tax cuts in next month's Budget.

Mr Balls' ideas include a VAT cut, a 3p income tax cut for a year, bringing forward the planned personal allowance rise to £10,000 and higher tax credits.

No tax cut could mean "a permanent dent in our nation's prosperity", he said.

The Conservatives said excessive borrowing and debt under Labour had led to the current financial mess.

Mr Balls told BBC One's The Andrew Marr Show the current austerity measures were "self defeating" and had left Chancellor George Osborne claiming he was "trapped by the credit rating agencies".

The shadow chancellor said he favoured a cut in VAT - which is a sales tax rather than a tax on income - because it would be the "fastest and fairest" way of boosting the economy.

"We've got to get growth back in the economy," he told the programme.

Writing in the Sunday Times, Mr Balls said: "Some people may be surprised to see Labour prioritising tax cuts. But in a crisis there is a premium on what works effectively and quickly to get our economy moving."

He said that such a cut should be funded by borrowing, not more spending cuts.

He claimed it was "absurd" to argue that the £12bn cost of reversing the government's 2.5% VAT rise was unaffordable, when borrowing was £158bn higher than planned because of slower growth and higher unemployment than had been forecast.

"Such a tax cut now would boost confidence, help families feeling the squeeze and help get our economy moving again."

He added: "Without that decisive action in the Budget to boost growth, I fear we are in for a lost decade of slow growth and high unemployment which will leave a permanent dent in our nation's prosperity."

As well as Mr Balls' proposed VAT cut, "in an attempt to put pressure on the chancellor ahead of next month's Budget, he also sets out an alternative menu of options which he thinks might appeal to some Conservative and Lib Dem backbenchers", says BBC political correspondent Iain Watson.

"If George Osborne can't bring himself to reverse his VAT mistake, he has other options," Mr Balls wrote.

Michael Fallon: 'Mr Balls is the man who racked those debts up in the first place and now wants us to borrow even more'

"For the same amount of money, he could cut the basic rate of income tax by 3p for a year. Or raise the income tax personal allowance to over £10,000. Or increase tax credits for almost six million working people by around £2,000.

"It would be better to cut VAT now - it's fairer and quicker and would help pensioners and others who don't pay income tax. But any substantial tax cuts to help households and stimulate the economy would be better than doing nothing."

Conservative deputy chairman Michael Fallon told BBC One's Sunday Politics that Mr Balls had not learned "from his time as Gordon Brown's right-hand man".

He said that Labour had built up the debts which the coalition government was now dealing with and all tax cuts had to be funded or there would be "billions of pounds of more borrowing and more debt".

Mr Fallon said Mr Balls' suggestion would put the UK's triple A credit rating at risk and the past week had seen international and national organisations back the coalition's economic strategy.

He also said that the Conservatives were still the tax cutting party, pointing out that Council Tax had been frozen and personal tax thresholds raised, so were doing what they could given the current economic situation.