Blair: My pledge to cut taxes

TONY BLAIR pledged yesterday to cut income tax levels and has rejected growing demands from within the Labour Party to raise money for public services by increasing the tax bills of high earners.

In an exclusive interview with The Independent, Mr Blair echoed Margaret Thatcher's response when her premiership was under fire, declaring there was "no alternative" to his economic policies and the way he runs the Labour Party.

Urging his party to "hold its nerve" during the world economic crisis, he ruled out action to bring down high interest rates and the high pound and said U-turns by previous governments had always ended in failure.

Mr Blair rejected proposals by Frank Field, the former minister for Welfare Reform, to impose a 50 per cent tax rate on people earning more than pounds 100,000 a year.

The Prime Minister revealed that he intended to renew at the next general election Labour's pledge not to increase income tax rates during the current Parliament.

This will disappoint many in his party, including some cabinet ministers, who want Labour to leave open the option of taxing the very rich if it wins a second term.

"If you look at what is happening around the world, high marginal tax rates are coming down," said Mr Blair. "One of our key priorities, when it is consistent with a strong economy, is to get high marginal rates down for lower income families."

Mr Blair said there were "more imaginative ways" of raising money than increasing tax, such as joint projects involving the public and private sectors. "It is unpopular in some quarters, the unions don't like it, but that is definitely the way the world is going."

In his only interview ahead of Labour's annual conference in Blackpool, which starts tomorrow, Mr Blair conceded that he faces a setback because some left-wingers are expected to win election to the party's National Executive Committee (NEC).

Privately, his allies fear the left will capture four of the six seats representing the constituency parties, with the rival Blairite slate winning only two. They admit that party modernisers were too slow to react to the left's threat.

Mr Blair accused the left-wing Grassroots Alliance of posing as "critical supporters of the Government" when they were really "outright opponents" and hiding the involvement of Liz Davies, one of its candidates, in the hardline Labour Briefing group.

While admitting that the moderate candidates were not as well known to party members, he warned those left-wingers elected to the NEC not to use their positions as a platform to attack the Government.

"Critical support of the Government is fine; outright opposition is very foolish," he said.

He understood why some Labour members would want critics of the Government to sit on the NEC, but insisted that gains for the left would not show that the party grass roots was turning against him. "There is no ideological alternative I can see being put forward to new Labour," he said. "I don't notice any desire in the Labour Party to return to the past. New Labour is the solution, not the problem."

The Prime Minister said he would make up his mind on proportional representation - one of the most difficult decisions he will face - after reading next month's report by a commission on reforming the voting system for the House of Commons under Lord Jenkins of Hillhead, the Liberal Democrat peer. Despite a cautious tone that will worry the Liberal Democrats, his remarks will fuel speculation that he will endorse the Jenkins plan for electoral reform but delay its implementation for some years.

"When we are talking about the legislative basis of the UK, we have to proceed with care," he said.

Asked whether he would honour last year's general election manifesto pledge to hold a referendum on proportional representation before the next election, Mr Blair replied: "Let us just see what Jenkins comes up with."

However, he suggested that he might call a joint referendum on proportional representation for elections to the House of Commons and the second stage of his reform of the House of Lords.

But this would almost certainly delay the plebiscite until after the next election.

"Obviously, how there is long-term reform of the Lords is closely linked to reform of the Commons, because it is about the Houses of Parliament and the system of government," he said. "Of course the Lords is linked to the Commons."