Firstly, income tax reduction will not impact businesses who are already struggling to pay their payments because those payments are a cashflow issue while income tax is on the accrual income earned over a period. Also adding in the tax effects of paying off interest payments then it will not have a large impact other than create a bit of confidence which is needed. Tax reduction of this kind is useful in a number of ways but I would have preferred lower taxes before the crisis rather than after it.

Ditto with capital gains tax which is the money made after selling a business or investment at a profit. This can help boost business confidence but not repay mortgages unless you are liquidating investments in an illiquid market to pay off mortgage payments.

The subprime mortgage industry in the UK is very small compared to the US. Default rates are not necessarily from the subprime mortgage book anyway, but can be from anyone. It comes down to what the individual bank reckons an individuals credit risk is worth. So what we are seeing here is a general problem in the market rather than a specific problem relating to UK Subprime mortgages.

Reducing income tax is a wonderful idea but those who are feeling the genuine squeeze are middle income earners not those on a lower income who could not get the mortgage in the first place. Reducing the marginal tax rate and increasing the lowest band will have a major benefit to the economy without costing the same as your proposal.

Finding waste is always easier said than done. Our national audit office is pitiful. What has to be done is an end-to-end audit across all departments by one (or all) of the big four accounting firms. Find the waste, and then eliminate it. This takes time and money to complete so there will be a lag between savings from reduction in waste and reduction in tax revenue.