Brown tries to rid Labour of spectre of high taxes

Click to follow

Political Correspondent

Gordon Brown has consistently refused to confirm that the better-off would pay more tax under Labour since he ditched the party's 1992 tax policies in one of his first acts as shadow Chancellor.

It is a stance which confused party members as much as tax advisers, and has prompted the briefings to businessmen by the accountants KPMG on how to switch their money out of the country under Labour.

However, it is central to Mr Brown's strategy to rid Labour of the spectre of high taxes which has haunted the party since the then Chancellor Denis Healey promised to "squeeze the rich until the pips squeak" in 1974. Mr Healey subsequently raised the top rate of income tax to 83 per cent.

These kinds of tax rates have been repeatedly disowned by Labour leaders, but Mr Brown believes the tax issue was one of the party's most serious weaknesses in both the 1987 and 1992 elections.

In 1987, Neil Kinnock, the party leader, and the shadow Chancellor, Roy Hattersley, inadvertently disagreed about what would happen to National Insurance contributions.

And in 1992, John Smith's "shadow Budget" proposing increased National Insurance contributions for people earning more than pounds 21,000 a year and a new 50p-in-the-pound income tax rate at above pounds 40,000 a year, left the party open to renewed Tory attacks.

Mr Brown's strategy was strengthened by the election of Tony Blair to succeed Smith as leader. In contrast to Smith's identification with the idea of redistributive taxation, Mr Blair talks of the need to preserve the "incentive" of low taxes.

The Brown-Blair strategy has also been vindicated by Tory tax rises since the 1992 election, which has enabled Labour to shift the ground of the argument over economic policy. Taxes have gone up under the Tories because of economic weakness, Mr Brown argues, and - more controversially - will go down under Labour because the economy will be strengthened.

But Mr Brown has still left a grey area for accountants and tax advisers to exploit. As KPMG say, "no statement has been made on Labour's current intentions" in respect of income tax and National Insurance for the higher paid.

KPMG's suggestion that Labour would bring in a higher rate of income tax "possibly at 50 or 60 per cent" is not outlandish, although Mr Blair and Mr Brown are believed to have discussed ruling out tax rates higher than 50 per cent.