Brown seeks to undercut Tories in tax battle

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Political Correspondent

The political battle over tax cuts in next week's Budget began in earnest yesterday, as Gordon Brown, the shadow Chancellor, defended his "long- term objective" of a 10p-in-the-pound starting rate for income tax.

Mr Brown gave the strongest hint yet that Labour MPs would not vote against a cut in the 25p standard rate. It would do nothing to improve incentives to help people "from welfare into work", he said on BBC TV, but added: "We have got to look at these things over the piece, and millions of lower and middle income people have suffered a huge tax rise in recent years."

Brian Mawhinney, the Conservative Party chairman, refused to concede tax-cutting ground to Labour. "No-one in the country believes that they're capable of restraining their spending instincts so as to afford tax cuts," he said.

Kenneth Clarke, the Chancellor, is widely assumed to have scope for tax cuts of about pounds 5bn after a hard-fought agreement on next year's spending totals. He is under pressure from Tory MPs to move towards the Tories' long-term aim of a 20p standard rate. At present, only the first pounds 3,200 of annual income is taxed at the lower rate of 20p in the pound.

Mr Brown linked his plan to cut this starting rate of income tax - which would only come "from the fruits of growth" and "as resources allow" - with changes in the benefits system to increase the incentive for the unemployed to work. Changes to Family Credit and Housing Benefit would ensure that people claiming in-work benefits would keep all their tax cuts and not have them clawed back in lost benefits.

Today, Mr Brown hints that Labour would raise taxes for higher-income families. Writing in the Independent, he says: "All lower and middle- income families would receive the full benefit from the [Labour] tax cut," implying that those on higher incomes would not.

The Liberal Democrats yesterday called for tax thresholds to be raised instead - taking some people out of paying income tax altogether.

Paddy Ashdown, the Liberal Democrat leader, who launches his party's alternative "Budget for Education" tomorrow, accused Labour of planning to abstain in a Commons vote "on a Budget that is irresponsible and gambles with the nation's future".

Andrew Dilnot, director of the independent Institute for Fiscal Studies, backed the Liberal Democrat approach and criticised Labour's plan as "a gimmick". But Mr Brown pointed out that raising thresholds was worth more to the better-off because it reduced the amount of income taxed at the 40p top rate, while a cut in the lower rate was worth the same to all but the lowest-paid.

Meanwhile, an NOP opinion poll in the Sunday Times found 41 per cent trusted Labour to take the right decisions about taxes, well ahead of the Tories on 29 per cent. The poll also found that 70 per cent supported an increase in the top rate of tax from 40p to 50p in the pound for people earning more than pounds 50,000 a year.

But the anxiety in the Labour Party over Mr Brown's tax- cutting stance was underlined by John Wells, a former economic adviser to Margaret Beckett in Labour's Treasury team. He announced yesterday that he had left the Labour Party: "There is no way they are going to have a fairer tax system and basically I doubt whether the performance of the economy will be any stronger than under the Tories," he told the BBC's On The Record.

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