Labour Conference: Taxation - Prescott denies `no rise in income tax' pledge tax

A CABINET split over taxation opened up yesterday after John Prescott, the Deputy Prime Minister, repudiated reports that Tony Blair had decided to reaffirm the pledge not to raise income tax for the next general election.

The Independent interview with the Prime Minister at the weekend in which Tony Blairruled out raising income tax after the next election set alight the controversy over taxation.

There were mass demonstrations outside the conference hall yesterday by health workers demanding higher pay for the low paid, and higher taxes on the rich. Ken Livingstone, who stepped down from the national executive committee, said: "Blair cannot be serious about not increasing personal taxation."

But the Chancellor will deliver a tough message to the conference today that there can be "no quick fixes, no magic wand" to deliver higher pay, and prosperity.

Gordon Brown will add: "There is no other way, not even the comfort of any soft options, no easy way, no magic-wand solution, no quick-fix easy alternatives to our long-term policies of achieving the goals we share."

Mr Brown will urge delegates not to "throw away" economic prudence as soon as there were problems. He will hail the New Deal programme before flying to the Commonwealth ministers meeting in Ottawa, followed by the G8 in Washington at the weekend.

Embracing the image of the "Iron Chancellor", he will say: "For the economy, our most basic promise of all ... was to restore as an essential objective of government, long-term high and stable levels of growth and employment.

"Our economic competence and our iron resolution, our prudence for a purpose was hard earned and hard won, and we will not sacrifice it for tomorrow's headlines or next week's easy slogans or next month's false solutions and fashionable gimmicks."

The Chancellor also gave the strongest signal so far that the Bank of England will cut interest rates next week. "The reason mortgages had to go up is the result of interest rate decisions to deal with the inflation problem that we inherited - we have now tackled that problem," he said on Sunday.

Like Mr Prescott, Mr Brown is unhappy about having his hands tied over income tax for the next Parliament. But friends said he had lost his appetite for any big hike in personal taxation.

Mr Prescott may take more persuading. He denied on Breakfast with Frost that any decision had been reached by Mr Blair. "He hasn't said that at all as I understand it. He has said that we made our programme for this Parliament and the time will come, appropriately, to make our decisions for the next time."