Brown's landmark plan to hit rich in tax hike
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Tuesday November 25 2008
The battle lines for the next general election in the UK were dramatically redrawn yesterday when the Chancellor Alistair Darling announced plans to raise taxes for everyone earning more than stg£40,000 a year and to cut taxes for the millions of people earning lower salaries.
His landmark mini-budget was a pivotal moment which will shape British politics for years ahead and presents voters with a stark choice between two very different futures: a European-style social democracy under Labour, in which the better off pay higher taxes to maintain public services, or a nation of lower taxes and state spending under the Tories.
The chancellor took a huge economic and political gamble. As well as abandoning New Labour's pledge not to raise income tax rates, he announced a massive hike in government borrowing, which will soar to £118bn next year -- even higher in real terms than during the Second World War.
Jubilant Labour MPs hailed what they called a "soak the rich" package. In private, ministers admitted the tax shake-up would redistribute wealth from the rich to the poor. In public, they described the changes as "fair".
The sweeping tax changes will not take effect until after the next election -- figures issued by the Treasury pointed to a 2010 poll and income from the tax and national insurance changes is not pencilled in until April 2011.
To fund an immediate £20bn "fiscal stimulus" aimed at softening the impact of the recession, people earning between £40,000 and £100,000 would pay an average £156 a year extra in tax and national insurance if Labour wins a fourth term.
Mr Darling insisted his emergency measures would limit the recession to a short, sharp one. His forecasts -- that the economy would contract by 1pc a year but then grow by 1.75pc in 2010 -- were more optimistic than those of many independent analysts. If they do not materialise, Britain will plunge deeper into the red.
The Tories have pledged to spend less than Labour, raising the prospect of a Cameron government having to make sweeping cuts in public spending to clear up the mess it inherited.
Exceptional
In an attempt to boost spending, VAT will be cut from 17.5pc to 15pc from next Monday until December 2009.
Similarly, rises in pensions and child benefits will be brought forward by three months to January.
Temporary tax cuts for 22 million basic-rate taxpayers, aimed at those who lost out as a result of the ill-fated decision to abolish the 10p tax rate, will be made permanent and increased to £145 a year from April, but 500,000 people will not be compensated.
Mr Darling told the House of Commons: "These are exceptional times and require exceptional measures. It requires action now to help people and action now to build a stable economy."
Senior Tories said last night that they were unlikely to reverse the tax increase for the rich if Labour introduced the necessary legislation before the election. They would not walk into a "trap" set by Gordon Brown where they appeared to oppose tax rises for the better off. "Reversing this will not be a priority for a Conservative government," one Tory source said. (©Independent News Service)
- Andrew Grice
