John McDonnell defends decision to support Philip Hammond's tax cuts amid Labour backlash

Labour will not 'take money out of people's pockets', shadow chancellor says

Ashley Cowburn
Political Correspondent
Tuesday 30 October 2018 16:48
Budget 2018: Philip Hammond increases tax-free personal allowance

John McDonnell has defended his decision to support Philip Hammond’s tax cuts for higher earners amid a growing revolt from members of his own party.

It follows the Resolution Foundation’s conclusion that the cuts announced in Monday’s Budget will “overwhelmingly benefit the rich” and the top 10 per cent of households.

Despite calls to drop his backing for Mr Hammond’s tax giveaway, the shadow chancellor said he would respect the policy expected to cost the Treasury over £9bn in the next six years.

He said Labour would not “take money out of people’s pockets”.

Instead, Mr McDonnell added, the party would focus on creating a “fair taxation system” clamping down on evasion and avoidance, reversing corporation tax, and increasing tax on the top 5 per cent of earners in Britain – as outlined in the party’s 2017 manifesto.

Labour’s mayor of Manchester, Andy Burnham, however, said he was “at a loss to understand why we are doing this”, and the Tottenham MP, David Lammy, said the party should not be supporting the policy.

In the Budget, Mr Hammond said personal allowance and the higher rate threshold will rise from April 2019, providing a “tax cut for 32 million people”.

The personal allowance – the minimum income someone can earn before paying tax – will rise to £12,500 from £11,850. At the same time, the higher rate threshold at which an individual becomes liable to pay the 40 per cent tax rate, will rise to £50,000 from £46,350.

Responding to the announcement on Monday, the shadow foreign secretary, Emily Thornberry, posted on her Twitter account: “There we are – tax cuts for the rich and they are coming sooner.”

But when pressed on the policy on Tuesday morning, Mr McDonnell told BBC’s Radio 4 Today programme: “We will support the tax cuts at the moment on the basis that it will inject some demand into the economy.

“But we put forward in the general election a fairer taxation system so that does mean that we will be asking the top 5 per cent to pay a bit more in income tax and we will be rolling back many of the corporation tax cuts that have taken place, and we will be cracking down on tax evasion and tax avoidance.”

“What we’ve said is we will leave those personal allowances at whatever we inherit but our focus will be on a fair taxation system,” he added.

Responding to his comments, Torsten Bell, the director of the Resolution Foundation, said: “Labour says it will support the income tax cuts announced yesterday – almost half of which goes to the top 10 per cent of households alone. Nearly 90 per cent goes to the top half. Not a good idea.”

Former work and pensions secretary Yvette Cooper said: “People on £90-100k a year will get tax cut worth £860 in April, those on £125k will get £600 – far more than low-paid workers, at a time when child poverty is going up, benefits are being cut, vital council services are being cut, police are badly overstretched. This is wrong. I cannot support it.”

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Pressed on his support for the policy in a post-Budget briefing with journalists, Mr McDonnell said: “We’re not going to oppose it on the basis that it will put more money into pockets, but our position is very, very clear.

“We’ll introduce our own tax proposals. We set them out in the general election… we’ll be arguing in the debate itself that we want a fair taxation system but where the top 5 per cent pay that bit more.”

He added: “We’re not going to take funding away from people. Some of these are middle earners, we’re talking about headteachers and people like that who have had a rough time as well as everyone else.”

Asked about Mr Burnham’s criticism, he replied: “I completely understand where Andy is coming from, but what we’re into is trying to ensure we have a fair taxation system based upon new proposals that we’re putting forward on income tax overall, which he supported and has done throughout.”

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