Labour wobbles over 50p tax rate

Chancellor hints new rate may be temporary as PM insists new Labour lives on
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Indy Politics

Alistair Darling's controversial £7bn tax hike on the rich moved to the centre of the political stage yesterday, as the Prime Minister was forced to counter claims that the pledge spelt the end for new Labour.

The new measures also caused problems for the Tories, with the shadow Chancellor, George Osborne, coming under fire from his own party for refusing to promise to scrap the 50 per cent tax on high earners.

Gordon Brown insisted the tax change did not mark a return to the class warfare of the 1970s. He said he remained committed to the new Labour values, despite breaking a manifesto pledge by increasing the income tax band. He insisted that the new rate, due to come into force next April ahead of the expected date for the next general election, was not "taxation for its own sake".

"The point that I think we have got to accept is, if we are going to give people opportunities they need for the future, then there has got to be a contribution by those who have the most, and who have gained the most over the last few years," he said.

"We are about giving people new chances, we are about helping people make the most of their potential. New Labour, that's what we're about."

Mr Darling also toured broadcasters to stress that the new top rate would only apply during these exceptional circumstances. He said he had a "duty" to reduce borrowing, but added: "I have also had to go to those people who have earned the most over the past few years, people on over £150,000, and say, 'you are going to have to contribute while we resolve this situation'."

When Labour last suggested a 50p top rate of tax, during the early Nineties, it was proposed as part of a permanent realignment of the tax system.

But Mr Darling received a boost today when a poll in The Times suggested that a large majority of voters support a 50p top rate of tax for the highest earners. The Populus survey found that 57 per cent were in favour of the new top rate, with 22 per cent against it. Support was highest among retired people, unskilled workers, and those living in Scotland and Wales.

A majority – 54 per cent – disagreed with claims that Budget measures will "discourage entrepreneurship and wealth creation and damage the City", with just 38 per cent agreeing. The tax changes are also proving to be a political headache for the Conservatives. The shadow Chancellor refused to commit to axing the tax hike on those earning over £150,000 yesterday, wary that Labour would use the pledge to suggest the Tories were helping the rich, while neglecting poorer taxpayers. "I don't like it," Mr Osborne said. "I don't think in the long run higher tax rates are a great idea for an economy. However, I cannot promise to reverse it."

In an attempt to head off the Labour trap, Mr Osborne said that his priority was to reverse the Government's increase in National Insurance payments that will hit everyone earning more than £20,000. "That is my number one priority. That's what I will work to avoid if I am the Chancellor of the Exchequer," he said.

But both key figures in the party and grassroots supporters are pushing for a promise to scrap the new tax rate. Boris Johnson, the Mayor of London, said that a Tory Government should abolish the higher rate, which will hit many working in the City.

"I'm against it," the Mayor said in an interview yesterday. "The Tories should not proceed with it. I would really urge them to concentrate on the huge savings that are available to an incoming government in Whitehall and look at the colossal waste."

The Tory supporters' website, ConservativeHome, said reversing the policy should be one of the priorities for Mr Osborne should he become the Chancellor after the next election.

"Without growth we are never going to get out of Labour's mess," said its editor, Tim Montgomerie. "We need to make it clear to every investor and entrepreneur – at home and abroad – that a Conservative government will create an economic climate that rewards risk, innovation and effort."

Other leading voices on the right of the party are holding off from making a stand on the issue, aware that they have been set a trap by the Chancellor and Gordon Brown. John Redwood dismissed the tax hike as part of "Labour's pathetic spin game". Philip Davies, the Tory MP for Shipley, said he would like to see the measure scrapped, but he was also aware of the political games. "I am not going to fall into a trap by spending all my time concentrating on something Gordon Brown wants me to concentrate on," he said.