George Osborne refused to rule out a cut in the top rate of tax from 45p to 40p today as the Conservatives and Labour clashed over the economy.
Labour, which announced at the weekend it would raise the top rate on earnings over £150,000 to 50p if it regains power, claimed the Tories had shown their true colours and were plotting another “tax cut for millionaires.”
In the Commons, George Osborne emphasised his tax-cutting credentials but dodged a challenge by Ed Balls to rule out another cut in the top rate, which the Chancellor reduced from 50p to 45p last year. Instead Mr Osborne claimed Labour’s tax announcement had been “disastrous” as it had been attacked by former Labour ministers.
The Chancellor is under strong pressure from Tory MPs to help people on middle incomes by raising the starting rate for the 40p higher rate tax band, which currently starts at £32,011 a year. But David Cameron has signalled that his priority would be to take more people on low incomes out of tax by raising the personal tax allowance, which rises to £10,000 a year in April.
Labour was accused of giving only a grudging welcome to yesterday’s official figures showing that the UK economy grew by 1.9 per cent in 2013. Mr Balls, the Shadow Chancellor, came under fire from Conservatives and Liberal Democrats after saying: “After three damaging years of flatlining in our economy... today's growth figures are welcome but everything we have seen today from the Chancellor shows he just does not understand for working people facing a cost of living crisis this is still no recovery at all.”
Privately, some Labour figures are worried that the party looks too negative about what is good news for the country. Yesterday’s TV bulletins omitted Mr Balls’s welcome for the growth figures and focused on his “no recovery” message.
Amid fierce clashes in the Commons, Mr Osborne told Mr Balls: “The truth is this - you welcome the economic news through gritted teeth because you didn't only say it wouldn't happen, you said it couldn't happen if we pursued our economic plan.
“You predicted jobs would be lost and a million have been created, you predicted the deficit would go up and it has come down. You predicted there would be no economic growth unless we borrowed and spent more - you have been wrong on all these things.”
In fact, all three main parties have a difficult message to get across on the economy. Yesterday Nick Clegg and Danny Alexander, the Chief Treasury Secretary, were noticeably more upbeat about the recovery than Vince Cable, the Lib Dem Business Secretary, had been in a keynote speech the previous evening. “Vince is a glass half-full man,” sighed one Lib Dem MP.
The Tories also have a delicate balancing act to perform. They worked hard yesterday to avoid looking too triumphalist about the recovery. They know that there is little sign of a “feelgood factor” in large parts of the country outside London. “Our biggest fear is a voteless recovery,” one senior Tory admitted.
There is another reason why the Chancellor does not want to crow. When growth returned last year, he was a little too keen to claim victory over Labour and had to be slightly reined in by 10 Downing Street. A “healed” economy became one that is “healing”. The present tense is required because the Tories do not want voters to think the job is done because they might then feel it is safe to back Labour. The Tories’ pitch at next year’s general election will be to say only they can “finish the job”, while warning that Labour would crash the economy (again). As Mr Osborne said yesterday: “The anti-business Labour Party is now the biggest risk to the economic recovery.”
Conservative ministers hope that Labour’s successful campaign on the “cost of living crisis” will be a diminishing asset as the growth figures get better. There are signs that Labour’s opinion poll lead is melting away, raising the Tories’ hopes that the tide is turning in their direction.
The big question is: will it really turn by May 2015? Downing Street is trumpeting its own figures showing that take-home pay rose faster than prices in 2012-13, but they have been criticised as selective by independent experts. And Labour is convinced that such claims will backfire because they insult voters, reinforcing the dangerous perception for the Tories of being “out of touch” with ordinary people.