Plans by the Conservatives and Labour for a fresh round of deficit reduction after the general election are being strongly attacked by one of the world’s leading economists who warns that renewed austerity will hold back a still-incomplete recovery.
In an attempt to step up the pressure on Labour leader Ed Miliband on tax, the prime minister will say the new law will help voters to choose between the Tories, who say they have cut income tax for 26m people, and Labour, which, he claims, taxed people “to the hilt”.
A five-year “tax lock”, to be included in new legislation, would guarantee no increases in income tax rates; no increases in VAT, nor an extension of its scope; and no increase in national insurance, nor an increase in its ceiling above the higher rate threshold. The Tories have made pledges in all these areas in recent weeks.
In a keynote speech, designed to be one of the highlights in a week of Tory campaigning on the economy, the prime minister will say on Wednesday: “This is the clearest choice on the economy for a generation. And beyond the plain facts, it also comes down to gut instinct. When you’re standing in the polling booth, ask yourself: on the things that matter in your life, who do you really trust?
“When it comes to your tax bill: do you trust the people who taxed you to the hilt when they were in power and still haven’t come clean about the taxes they want to increase next time round? Or do you trust the Conservatives, who have cut income taxes for 26 million people and who will cut your taxes again next time?”
The Tories and Labour manoeuvred each other to a standstill on tax policy in the runup to the election.
Labour has closed off a traditional Tory line of attack by ruling out any increase in the basic or higher rates of income tax although it has pledged to restore the 50p top rate of income tax. The Conservatives moved to prevent a Labour line of attack by ruling out a rise in VAT. George Osborne raised VAT from 17.5% to 20% in January 2011.
Chris Leslie, the shadow chief secretary to the Treasury, dismissed the prime minister’s announcement: “This is a desperate last-minute gimmick from the Tories which nobody will believe a word of. David Cameron broke his promise not to raise VAT last time and, if he gets the chance, he’ll do the same again.
“The Tories have made billions of pounds of promises without saying where the money is coming from. And they have extreme plans to double the pace of spending cuts next year which will see them slash tax credits for working families.
“Labour’s policies are fully funded, which is why our manifesto pledged not to raise VAT, national insurance or the basic and higher rates of income tax. For all David Cameron’s claims, tax and benefit changes under the Tories have left families £1,100 worse off since 2010. Working people can’t afford five more years of the Tories.”
The clear Labour commitments on tax have undermined Tory efforts to reprise the success of their 1992 election campaign when the party warned that the then shadow chancellor John Smith was planning a series of tax “bombshells” on middle Britain. But the Tories hope that their record in office will help to persuade voters that they can be more trusted on tax.
The prime minister will point out that the coalition has taken 3m people out of paying income tax altogether by raising the tax free personal allowance from £6,475 in 2010 to £10,600. The Tories say they have saved the typical family about £10 every time they fill up their fuel tank by freezing fuel duty.
In his speech, the prime minister will confirm that nobody working 30 hours on the minimum wage will pay income tax after the personal allowance is raised to £12,500 by 2020. The move will take one million people out of paying income tax.
Labour points out it has offered clear commitments on tax. Its manifesto says: “We will create a fairer tax system, helping those on middle and lower incomes by introducing a lower 10p starting rate of tax, paid for by ending the Conservatives’ marriage tax allowance. We will not increase the basic or higher rates of income tax or national insurance. Nor will we raise VAT, and we renew our pledge not to extend it to food, children’s clothes, books, newspapers or public transport fares.”
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