Mr Responsibility he may be, but we could all still pay more

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The Independent Online
His speech made it clear, if anybody still doubted it, that responsibility is Gordon Brown's middle name. He wanted to hammer home once again the idea that new Labour is not going to tax more to spend more. Yesterday's dramatic announcement was his biggest hammer-blow yet, leaving many observers reeling.

But could Labour deliver five years of government without any tax rises? Could any government? There was plenty of City scepticism about Mr Brown's pledge to stick to the current spending plans for this financial year and to the expenditure total already set for 1998/99.

Steven Bell, head of research at Deutsche Morgan Grenfell, said: "They are painting themselves into a corner. We have never even believed the Conservatives could keep to these spending plans." Pamela Meadowes, director of the Policy Studies Institute, said Labour were "raising expectations about health and education which they will have an enormous amount of difficulty in satisfying if Mr Brown sticks to what he said in his speech".

The City attributes Kenneth Clarke's success in meeting his spending targets for the last three years to the freezing of public sector pay - possibly thanks to low inflation. Labour will find it very hard to deliver the same deal.

Given that the national debt has doubled under Mr Major's time as Prime Minister and the Government's plans to cut borrowing are already considered over-optimistic, many City experts think higher taxes are a near-certainty after the election.

Labour clearly cannot admit this logic and agree now that the government finances are in a mess. But Mr Brown is well aware of the danger of Labour promising something in the heat of the election campaign that it cannot deliver afterwards.

This was the trap that caught out the Tories on tax in 1992, doing their credibility huge damage ever since. Yet now, five years on, Labour has made this new and dramatic pledge at a time when the public finances are in a precarious state and the current spending plans unrealistic. How does the shadow Chancellor try to escape this dilemma?

The most important thing is that Mr Brown, despite the bold rhetoric, has not actually promised not to increase taxes if the public finances require it. There are other ways. Labour has ruled out neither reducing tax breaks such as mortgage interest tax relief, nor increasing company taxation.

To judge from the City reaction yesterday, few of Labour's old enemies in the financial markets query its underlying fiscal prudence. Indeed, many people in the markets now predict that the pound would fall if it looked like the Conservatives could snatch an election victory, because investors think Chancellor Brown would be more cautious in setting interest rates and government borrowing than Chancellor Clarke.

It is a thought to delight new Labour strategists. But there is another thought for the rest of us to chew over: unless there are serious spending cuts then, whoever wins, and whatever they say now... taxes will probably rise.

Labour's loopholes

The shadow Chancellor Gordon Brown's pledges yesterday not to increase income tax during the lifetime of the first Labour parliament left several loopholes for future tax increases.

While he also pledged not to extend the scope of value-added tax, he was careful to leave the way open for tax increases through the 200 tax exemptions, reliefs and allowances - like mortgage interest tax relief.

He renewed the party's commitment to treat individuals in an equitable way, and to ensure that the tax burden is based on an ability to pay, along with a crackdown on the minority of high-earners who abuse the system using "scams, loopholes and dodges".

Mr Brown also threatened specific action against wealthy individuals who avoid paying tax on estates worth more than pounds 1m, and companies making billions who escape their fair share of tax by using offshore tax havens.


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