Alistair Darling will use this week's pre-election Budget to launch Labour's battle for the moral and economic high ground, with confirmation that a new annual tax on banks, to pay for their part in the financial crisis, is on the cards.
The Chancellor will contrast the Government's response to the recession with what he will say were the Conservatives' "wrong judgement" calls in opposing the fiscal stimulus and the rescue of Northern Rock.
While David Cameron yesterday focused on attacking Labour's protection of its "vested interest" in the trade unions in relation to the BA strike, Mr Darling will renew Labour's assault on the banks.
Two polls last night suggested that the country was still on course for a hung parliament. An ICM poll for the News of the World gave the Tories a six-point lead, down two points to 38 per cent, with Labour on 32 per cent and the Lib Dems on 19. Meanwhile, a YouGov poll for The Sunday Times gave the Conservatives a seven-point lead, on 38 per cent to Labour's 31 per cent, with the Lib Dems on 19.
The Budget, which sources say will focus on jobs and growth, will offer voters a "clear choice" between an experienced government under Gordon Brown and a misguided Tory opposition, the Chancellor will say.
Mr Darling will refuse to backtrack on Labour's policy of continuing to spend into the next financial year to "steer Britain into recovery", rather than the Tories' plans to cut spending immediately to reduce the £170bn deficit. Yet there has been tension between the Treasury and Downing Street over how much to "sweeten" the Budget with billions of pounds of "extra" cash from lower-than-expected borrowing, lower unemployment and this year's increase in VAT revenue.
Lord Mandelson, the Business Secretary, who favours Mr Darling's cautious approach on spending, told Scotland on Sunday last night: "It's not the time for giveaways; it's not the time for political budgets. It's the time to be serious and honest with people."
For the first time, Mr Darling will commit Labour to a "systemic risk" levy – charging banks for the dangers they pose to the economy – if the party retains power at the election. The Government's support for such a move, over Mr Brown's original backing for a "Tobin tax" on financial transactions, was first revealed by this paper last December. But Labour would only impose the new tax as part of a wider global agreement – which would be finalised at the G20 finance ministers' meeting at the end of June, nearly two months after the expected date for the election, 6 May.
President Barack Obama has already announced a 0.15 per cent tax on the liabilities of US banks.
Mr Darling wants to use revenues raised by the levy for public spending, while the Prime Minister favours spending some of the windfall on the developing nations which bore some of the burden of the economic slide.
Mr Cameron, in a major speech yesterday, also committed a Tory government to the new bank tax, but party sources said he would not wait for international agreement to push ahead.
The Tory leader, speaking to party workers in Putney, south-west London, invoked his predecessor Margaret Thatcher by taking on Labour's "vested interests" in the union movement, adding: "Some union barons may use strikes to block progress on cutting the deficit – but they have to realise that unless we pull together and deal with our debts, then the economy will not recover, more jobs will be lost and things will get worse.
"And with the Budget this week, this is no time to shy away from confronting some of the biggest vested interests in our country – the banks. We had the biggest bank bailout in the world. We can't just carry on as if nothing happened.
"In America, President Obama has said he will get taxpayers back every cent they put in – why should it be any different here? So I can announce today that a Tory government will introduce a new bank levy to pay back taxpayers for the support they gave and to protect them in the future."
Treasury sources said Mr Darling's statement to the Commons on Wednesday will "not be a traditional pre-election Budget". He will say British voters face a "clear choice – between an experienced government ready to take tough decisions to maintain growth and jobs, and politicians who at every turn have made the wrong choice during the recession".
He will contrast the Government's rescue of Northern Rock with the Tories' opposition to a bailout – pointing out that the bank is now slowly returning to health. The Tories were also wrong to oppose the fiscal stimulus, backed by 186 countries worldwide, Mr Darling will say. The recession, in the Tories' hands, would have turned into a depression, he will claim.
Pulling support now would put the recovery at risk. It is only public spending which can help people at work, Mr Darling will say.
The parties and their election pitfalls
Recent election polls predict a hung parliament – but the next few weeks could see a dramatic change in fortunes if any of the three main party leaders fail to avoid several pitfalls.
This weekend's BA strike, organised by Unite, the union bankrolling Labour's election campaign, is a period of danger for Gordon Brown. The second stoppage is set for next weekend, and an RMT rail strike is on the cards for Easter weekend, only days before the PM is expected to call the election. But will voters blame Labour for the strikes, or do they care more about the party's plans for the economy?
The Lord Ashcroft affair refuses to go away, with William Hague's media appearances raising more questions than answers. Yet many voters regard it as little more than a Westminster row. David Cameron has promised he will set out his tax plans before polling day, which will either bring clarity or cause a backlash from the Conservative right.
Nick Clegg must tread the tightrope between Labour and the Tories. The main focus on him will be the three TV debates, when he could shine – or wither – in the spotlight.Reuse content