Labour target better off to raise billions in tax

Gordon Brown, Chancellor of the Exchequer, is expected to increase taxes for the better-off in his July Budget.

While Labour said in its manifesto that there was no question of increasing income tax rates, Mr Brown was careful not to tie his hands when it came to changing tax allowances.

The key loophole in the manifesto says the principles to be applied to tax policies will be "fair and be seen to be fair". The prime target for attack will be the fact that while millions of employees are on Pay As You Earn,hundreds of thousands of better-off people live on a "Pay If You Like" principle, strongly attacked in a Labour policy paper, Looking to the Future, in 1990.

It is estimated that more than pounds 1bn could be raised by putting a pounds 10,000 annual limit on the tax allowances that can be claimed by any one taxpayer. In 1992 635,000 taxpayers claimed total allowances and reliefs of more than pounds 10,000.

Other options include restricting reliefs to the 23p income tax rate rather than the 40p top rate. Some Labour sources have their eyes on the pounds 2.4bn mortgage interest relief, the pounds 2.2bn relief for personal pension contributions, and the pounds 8bn relief for occupational pensions.

Mr Brown's first Budget, expected on 1 July, will announce a windfall tax on privatised utilities and a reduction in VAT on domestic fuel to 5 per cent.

The money raised from the windfall tax is earmarked for the "welfare to work" schemes to get about 250,000 young people into jobs.

Beyond those pledges, the Budget is likely to start shifting the burden of income tax with moves towards a starting rate of 10p for the low-paid. That could be financed by a clampdown on tax relief loopholes.

But yesterday's drama, as the new Government started to take shape, was centred on the appointment of Peter Mandelson to the post of Minister without Portfolio, hours after he had jumped the gun by revealing his powerful new role on Sky Television's Sunday with Adam Boulton.

Portraying himself as a New Labour commissar, Mr Mandelson said: "I'm there to assist in the strategic implementation of our policies, to make sure our programme is kept on track and moving forwards, and to ensure that Government policies are effectively presented to the public and to the party."

He also said: "Heads of departments are very, very responsible people. They obviously have a great deal of latitude day-to-day, but what they will be implementing and what they will be adhering to is the agreed programme of the party."

He said Mr Blair would want to create "a strong centre in government, so that all its various arms and departments have a very clear sense of their own direction, how they are going to form part of the overall picture, so that we can very rapidly start implementing and delivering what we stood for and what we pledged to the British people." The tone of Mr Mandelson's remarks is certain to annoy Cabinet ministers.

Mr Blair yesterday made three other ministerial appointments, two of them to join Mr Brown at the Treasury.

Geoffrey Robinson, the millionaire businessman, owner of the New Statesman, and MP for Coventry North-West, becomes Paymaster General, with responsibility for expanding the Public-Private Finance Initiative; Helen Liddell, an economist and MP for Airdrie and Shotts becomes Minister of State at the Treasury.

Doug Henderson, MP for Newcastle North, was appointed Minister for Europe yesterday. He hit the ground running last night with direct briefings from the Prime Minister and Robin Cook, the Foreign Secretary, before embarking on his first ministerial, negotiations in Strasbourg today. Mr Cook said yesterday: "At today's meeting, Britain will take the first step towards signing up to the Social Chapter."

Ministers to be appointed today are expected to include former education and employment spokesman Stephen Byers; former health spokeswoman Tessa Jowell; former employment spokesman in opposition Ian McCartney; former treasury spokesman Alan Milburn; and election campaign spokesman Brian Wilson.