The possible new 'top people's' tax rate - as well as the imposition of 8 per cent VAT on private health care - is one of a range of ideas designed to symbolise the Government's willingness to ensure that the better-off bear their share of any increase in the tax burden.
One of the strongest complaints against rises in indirect tax - such as VAT and excise duty - are that they hit the poor hardest because they take a bigger proportional share of their disposable income.
An increase in top tax rates would affect far fewer people than the new 45 per cent band for all higher taxpayers suggested earlier this month by Keith Hampson, Tory MP for Leeds North-West, which would raise pounds 1.8bn.
However, although limited in revenue-raising terms, it would please 'one-nation' Tories and backbenchers who say they face complaints about the salaries paid to leading businessman, including the chairmen of privatised utilities.
Proposals for the imposition of VAT on private health charges have also circulated within the Treasury, although one senior member of the Government argued yesterday that it 'would mean a lot of aggravation for not much money': it would alienate many Tory supporters, not all of whom were rich. The private health insurance industry would also strongly oppose any such proposal on the grounds that health is exempted under EC regulations - although Italy imposes VAT on health care.
But the circulation of such plans is strong confirmation that Mr Clarke is considering further widening of the VAT base - charging it on newspapers and books being one possibility, which would raise about pounds 1bn. VAT on books would provoke immediate outrage as a 'tax on learning', but it could be offset by a simultaneous decision to outlaw the Net Book Agreement, which sets minimum prices.
The lively discussion in Whitehall about possible plans for new indirect taxes comes in the wake of the continued refusal of Michael Portillo, the Chief Secretary to the Treasury, to bow to pressure from fellow right-wingers on the Tory backbenches by ruling out tax increases in the Budget.
But one question that could yet face Mr Clarke will be whether to lift or abolish the ceiling on National Insurance contributions. Although this was discussed before Norman Lamont's March Budget, it was vetoed on the grounds that the Tories had condemned a similar Labour proposal in the general election as a 'tax on jobs'.
The conflict within Labour over economic policy resurfaced yesterday when Peter Mandelson, MP for Hartlepool, strongly attacked Peter Hain, secretary of the Tribune Group of MPs, for criticising the party leadership and advocating a return 'to the policies that failed in the early 1980s'.Reuse content