Blair hints at Labour tax cuts

r Gas, water and electricity face `windfall' levy on profits r Ashdown accused of posturing

TONY BLAIR, the Labour leader, has refused to pledge his opposition to any income tax reductions in November's Budget, and raised the prospect that a Labour government could cut tax further.

In an interview with the Independent on Sunday, Mr Blair said: "If you can get taxes down for the ordinary family, consistent with the proper running of the economy and with strong public services, who on earth could dispute that?"

But Mr Blair also offered the missing link that would allow Labour to deliver better public services without increasing the tax burden on ordinary people: a windfall tax on the privatised utilities. Tomorrow, Gordon Brown, the Shadow Chancellor, will step up Labour's attack on the utilities, which he believes could yield around pounds 3bn with a new Utilities Monopoly Levy.

In the interview, the Labour leader said that Paddy Ashdown, leader of the Liberal Democrats, was "posturing to a very large degree" when he called on Mr Blair to join them in a promise to vote against likely tax cuts in November. Mr Blair said: "There were many parts of his speech which I thought were very good and I think he essentially wants the same things for Britain that we do, but I think they really have to be extremely careful on the area of tax."

He added: "This country has had a 7p in the standard rate ... tax rise. The Tories have put more tax on the average family than any government has done. The last thing they want to hear is that a Labour government is going to come in and make them even higher."

The comments are a clear warning to his party not to expect automatic opposition to Conservative tax cuts in the November Budget, which Mr Blair believes are certain.

He said: "I don't think it puts us on the spot at all. It will only put us on the spot if we start taking an a priori position now about what we are going to do. We will see what the circumstances are. I don't think anyone sensible wants to raise the tax burden."

Mr Blair said that the behaviour of the privatised utilities had been an "absolute scandal". A paper compiled for Mr Brown, by his economic adviser, Ed Balls, says that the levy on the utilities will form a part of the party's election manifesto. The paper says it will be a "one-off levy", earmarked to pay for an "emergency employment and training programme".

The document also compiles recent reports from City brokers revealing the amounts of money which could be raised. A report from Smith New Court in February, covering regional electricity companies and water companies, estimates that the utilities "are able to withstand up to pounds 10bn of windfall taxes between them and still remain financially viable". Barclays de Zoete Wedd, covering the water industry, predicts that the windfall tax "could be pounds 2.5-5bn".

Mr Brown is thought to believe pounds 3bn to be a more realistic figure for the one-off yield.

In his interview Mr Blair defended his modernisation of Labour. He said: "We are where we are because we had the courage to change. There will inevitably be people unhappy with this process."

He added that there was not a "serious intellectual argument" about the need for change in the Labour Party, just "tittle-tattle about unelected groups or leaks". By contrast, he said, Conservative divisions did centre "on a fundamental serious intellectual argument" about John Major and his position on Europe.

On education, he said the party was examining how it could raise standards among headteachers, and how failing heads could be removed. That raises the prospect of headteachers being placed on short-term contracts.

rThe new director general of the Confederation of British Industry, Adair Turner, will today warn Mr Blair that his support in the business community is fragile. On GMTV's Sunday Programme he will say that pressures " from the markets and from its own backbenchers" could make it difficult for Labour to deliver on some of its statements.

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