Balls will restore 50p tax rate in bid to revive Labour’s economic …
Shadow chancellor Ed Balls speaks to the Fabian Society’s annual conference at the Institute of Education, London. Photograph: Stefan Rousseau/PA
Labour1 stepped up its attempts to win back economic credibility as it promised to restore the 50p top rate of income tax2 on people earning more than 150,000 a year in order to help balance the nation’s books and create a “fairer” tax system.
But the commitment by shadow chancellor Ed Balls3 was immediately criticised by business groups and tax campaigners, who said it would drive away investment and do further damage to, rather than enhance, Labour’s economic reputation. Even former City minister Lord Myners questioned the move. Balls coupled his announcement on the 50p rate with pledges that a Labour government would run a budget surplus by 2020, keeping tight control on public spending.
He also committed the party to begin cutting the national debt during the course of the next parliament. He dismissed claims by the chancellor, George Osborne, that the 50p rate introduced by Labour in 2010 had not raised much money and had cost jobs, and argued that it was only fair that the highest earners should play their part in bringing the deficit down. Speaking at the Fabian Society’s annual conference, he said: “The latest figures show that those earning over 150,000 paid almost 10bn more in tax in the three years when the 50p top rate of tax was in place than when the government conducted its assessment of the tax back in 2012.
And when the deficit is still high it cannot be right for David Cameron and George Osborne to have chosen to give the richest people in the country a huge tax cut.” Reversing a tax cut that only hit the richest 1% was proof that Labour would cut the deficit “in a fairer way”. Osborne announced in his 2012 budget4 that he was scrapping the 50p rate, saying it raised “next to nothing” and harmed the economy.
The top rate went down to 45p in April last year. Previously Balls had committed Labour to matching Conservative spending plans only until the end of 2015-16. His latest announcement means Labour will have a year longer than the Tories before they are committed to running a surplus.
The Tories have said they will bring the current account into surplus by the end of 2018-19. The Tories immediately criticised Balls for having failed to learn the lessons of the past, claiming he would still raise spending as well as taxes, and damage the economy as a result. Sajid Javid, financial secretary to the Treasury, said: “Labour would put the recovery at risk, drive away investment and put our economic security at risk.”
Danny Alexander, Liberal Democrat chief secretary to the Treasury, also criticised the plan: “Labour’s answer is to borrow more over a longer period, which will leave a higher burden of debt to be dealt with by future generations. That is not fair or responsible. We need to stick to the plan to secure the recovery, not weaken our resolve now.”
Business groups agreed. Katja Hall, chief policy director at the CBI, said: “Getting the UK’s deficit and national debt down is essential to maintaining the country’s credibility with the markets and for the long-term health of our economy. We’ve been clear that this must go hand in hand with pro-business, pro-growth policies.
We don’t believe that introducing a 50p income tax rate is the right way to raise the money, because that puts talented people off coming to the UK to invest and create jobs.” Myners, Labour’s City minister from 2008-10, said: “‘We need to encourage productive enterprise and effort rather than resort to predatory taxation. It is not clear how this is going to help the UK economy compete with the world’s growth economies.
The UK already has an income tax system that is more progressive than most of our international competitors.” Mark Littlewood, director general at the Institute of Economic Affairs, said: “As the UK’s economy finally begins to grow, it’s absurd that the shadow chancellor has announced a policy that would jeopardise the fragile recovery.” Balls said he also wanted to support ordinary working people, by introducing a lower 10p starting rate of tax to help make work pay and cut taxes for 24 million working people on middle and lower incomes.
He would tackle tax avoidance and reverse tax cuts for hedge funds to ensure “that those with the broadest shoulders bear a fairer share of the burden”. Balls has been under pressure from some in the party 5to do more to show that Labour would be as tough on tackling the deficit as the Tories. Labour is concerned that the Tories will win more credit in the coming months for their hard line on spending and the deficit as the recovery strengthens.
Recent polls have shown a growing lead for Cameron and Osborne over Balls and Ed Miliband on economic competence as the outlook has improved. At their last party conference, in Glasgow, the Lib Dems narrowly rejected a motion 6to restore the 50p rate of tax. The party’s former Treasury spokesman in the Lords, Lord Oakeshott, said: “Lib Dems are divided on the 50p rate but united behind the idea of a mansion tax as the spearhead of our attack on equality which stains the face of Britain.” Previous attempts by Lib Dem business secretary Vince Cable to get Osborne to back a mansion tax7 were blocked by David Cameron.
Balls acknowledged that Labour still had work to do to regain the trust of voters on the economy. “Our task is to show to a sceptical electorate that Labour has learned from its mistakes and that we have the values, the ideas and the credibility to deliver the change Britain needs.”
On his first day as Labour leader, in 1994, Tony Blair said that the party would not add to the middle-class tax burden. He pledged that the top rate of tax would stay at 40p, warning that primary school teachers, police officers and middle managers would be hit by any rise. Commenting on a new 50p rate for people earning more than 150,000 a year in April 2009, prime minister Gordon Brown declared that it was right that the better-off should contribute more to the rebuilding of Britain’s battered public finances.
The coalition’s Conservative chancellor, George Osborne, reduced the tax rate on earnings of more than 150,000 to 45p last March, claiming that the 50p rate raised “next to nothing”.
Prime minister David Cameron has suggested he wants the top rate to be cut again, to 40p.
- ^ More from the Guardian on Labour (www.theguardian.com)
- ^ More from the Guardian on Tax (www.theguardian.com)
- ^ More from the Guardian on Ed Balls (www.theguardian.com)
- ^ in his 2012 budget (www.theguardian.com)
- ^ under pressure from some in the party (www.theguardian.com)
- ^ narrowly rejected a motion (www.theguardian.com)
- ^ Lib Dem business secretary Vince Cable to get Osborne to back a mansion tax (www.theguardian.com)
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