Labour likely to rule out rises in income tax rate

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Labour intends to issue a firm pledge that it will not raise income tax rates if it wins the next general election in an attempt to neutralise Tory claims that voters face huge "third-term tax rises".

Labour intends to issue a firm pledge that it will not raise income tax rates if it wins the next general election in an attempt to neutralise Tory claims that voters face huge "third-term tax rises".

Tony Blair and Gordon Brown are expected to promise to maintain the 22p in the pound basic rate and 40p top rate in the Labour Party's election manifesto. But Labour is unlikely to make such a firm commitment on national insurance, which was increased by 1p in the pound in 2002 to boost health spending. The Tories will claim that Mr Brown would need to extend his "stealth taxes" to balance the books if Labour retains power.

The way was cleared for a pledge to freeze income tax rates at a meeting of Labour's national policy forum last month, when left-wing demands for a 50p top rate on earnings above £100,000 a year were rejected.

The private meeting, which discussed the outline of the manifesto, voted for a statement saying: "We will continue to build on our efforts to ensure the tax and tax credit system remains progressive and in line with our principles of ensuring fairness, opportunity and security for all, while at the same time raising sufficient revenue to pay for investment in public services."

Labour sources said this formula would allow the party leadership to repeat the pledge not to raise tax rates in the manifesto, adding that this was widely expected to happen. Government sources said no final decision had been taken.

The new pledge will disappoint critics of Mr Blair, who fear that a re-elected Labour government will struggle to maintain its investment in public services without direct tax rises. The Institute for Fiscal Studies has warned that taxes may have to rise to fill a £13bn a year "black hole" in the Government's finances.

Supporters of a bolder approach on tax say Labour "won the argument" for higher taxes earmarked for a specific purpose when Mr Brown raised national insurance without provoking a huge backlash.

But Mr Blair and Mr Brown fear that voters would not yet tolerate a further rise in direct taxation. The Chancellor sought to reassure Labour activists worried about the income gap between rich and poor by telling the policy forum that low-income workers had received the biggest percentage increases since 1997 due to tax credits, while the top 10 per cent of earners now paid 52 per cent of tax plus national insurance, up from 40 per cent.

The Government reacted coolly to proposals published yesterday by the Institute for Public Policy Research for a shake-up of inheritance tax, including a new 50p rate on estates worth more than £763,000.

Labour's commitment not to increase income tax rates was first made in its 1997 election manifesto. It helped the party to shed the "high tax" image which was widely blamed for its 1992 defeat, when it promised to raise taxes to fund increases in pensions and child benefit. Mr Brown further established Labour's credentials on tax by cutting the basic rate from 23p to 22p in the pound. But the Tories claim that taxes have risen by the equivalent of 16.5p in the pound after the introduction of 66 "stealth taxes" since 1997.

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