Ed Balls ruled out introducing rises in national insurance and in the basic and higher rates of income tax as Labour moved to neutralise claims by David Cameron that the party was planning to introduce a tax “bombshell” after the election.
In response to a challenge from the prime minister, after he ruled out a rise in VAT, the shadow chancellor said the Labour election manifesto would contain clear commitments on tax to protect people on middle and lower incomes.
Balls told the BBC: “We have clear pledges. No rise in VAT under Labour, no rise in the basic and higher rates of income tax under Labour, no rise in national insurance under Labour.”
Labour was forced to clarify its stance on national insurance and to bring forward a planned manifesto pledge on income tax rates after the prime minister moved to close off one of the main lines of attack from Labour by ruling out an increase in VAT.
Cameron’s challenge appeared to surprise the Labour leader and some of his own minsters. Priti Patel, the Treasury minister, said she had not been informed of the move.
The announcements by the two parties were triggered when the prime minister responded to Miliband with a simple “yes” when he was asked whether he would rule out a rise in VAT.
In the last session of prime minister’s questions before the election, Cameron scored a clear victory over Miliband, who was unable to say in turn whether a Labour government would raise national insurance contributions. It was an hour later that Balls ruled it out.
He told the BBC: “Working people have suffered enough under these Tories. It is right for us to say those on the highest incomes with the broadest shoulders should pay more – the bank bonus tax, the mansion tax. Our plans add up, theirs don’t. As night follows day, if people vote Tory VAT will go up. It always does and it will again.”
The moves by the two parties, which amount to the most significant announcements on tax policy before the election, mean that the next government of whatever party will have less room for manoeuvre on taxation. VAT, national insurance and income tax raise the vast majority of revenue. The Tories have already made clear that the only extra tax they plan to raise will come from a £5bn crackdown on tax avoidance.
Labour had been planning to announce that it would not raise the basic and higher rates of income tax, which stand at 20% and 40%. It has pledged to restore the top rate of tax, lowered by George Osborne in his “omnishambles” budget in 2012 to 45%, back to 50%.
Miliband’s failure to answer the prime minister’s challenge on national insurance suggested that Labour had been trying to keep its options open. Balls said he had made clear in recent days that he had no plans to raise this as he said the prime minister’s VAT pledge was not believable.
The shadow chancellor said: “Nobody will believe a panicked prime minister making things up on the hoof but actually unable to answer the questions about what his cuts will really mean.”
Labour will continue to use posters warning of a Tory VAT rise because the party does not believe Cameron’s promise, an aide said. He pointed to a similar Tory pledge before the 1992 election that was broken a year later. “They are in a post-budget panic,” he said. “They are spooked ... and making up policy on the hoof.”
The prime minister won strong applause from the Tory benches after he said the party would not raise VAT.
In an echo of the language deployed by the Tories in the 1992 election campaign, when John Major defied the polls to win a majority, the prime minister said: “So we know there is a tax bombshell coming from Labour and it is going to be, we learned today, a jobs tax bombshell … It would wreck our economy.”
The Labour leader, who appeared surprised by the prime minister’s clear response, paused briefly before saying: “Let me say to him nobody is going to believe him. Nobody is going to believe it because of his extreme spending plans, because his numbers don’t add up and because he promised it last time and he broke his promise.”
The prime minister then moved to turn the tables on Miliband by asking whether he would rule out increasing national insurance contributions. The Labour leader declined to answer the prime minister’s question, moving on to a new subject by asking whether the prime minister would admit he had broken his target to cut net migration to the tens of thousands.
Cameron asked for a response to his question about whether he would increase national insurance contributions, which he described as Labour’s jobs tax that would clobber workers. Miliband said: “There is only one person who is going to raise taxes on ordinary families and that’s him. He is going to cut the NHS.”
The prime minister’s decision to rule out a VAT rise knocked away one of Labour’s main lines of attack in the general election. Balls gave an undertaking earlier this week that Labour would not increase VAT on the grounds that it hits the poor harder because they spend a greater proportion of their income on items subject to the tax.
Balls pointed out Cameron had said before the last election that he had “absolutely no plans” to raise VAT. But George Osborne then raised VAT from 17.5% to 20% in his emergency budget in June 2010. The rise came into effect in January 2011.
The exchanges on VAT came after Miliband taunted the prime minister over his BBC interview in which he ruled out serving a third term in Downing Street if he won the election on 7 May. The Labour leader said: “On Monday the prime minister announced his retirement plans. He said it was because he believed in giving straight answers to straight questions. Now after five years of prime minister’s questions, that was music to my ears. So here is a straight question. Will he now rule out a rise in VAT?”
The prime minister said: “In 43 days’ time I plan to arrange his retirement. But he is right. Straight answers deserve straight questions and the answer’s yes.”
Asked why Cameron’s position had changed since Tuesday when Osborne refused five times to rule out raising VAT, a senior Tory source claimed the party had said all along that it had no need to increase the tax.
A senior Labour aide said Osborne “had an interesting look on his face” when Cameron made his announcement. He declined to say whether Miliband had prepared for the possibility of Cameron ruling out a rise but pre-prepared briefing notes referred to the Conservatives refusing to be clear about an increase.
This article was written by Nicholas Watt and Rowena Mason, for theguardian.com on Wednesday 25th March 2015 16.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010