Ed Balls says Labour would resurrect 50p tax rate
Labour government would reintroduce the 50p top rate of tax for those earning more than £150,000 a year, in a move which Ed Balls, shadow chancellor, claims will help him balance the nation’s books by 2020.
But Mr Balls’s confirmation that Labour would raise taxation on high earners was criticised by business groups, and the Conservatives claimed the move would raise little additional revenue for the Treasury.
In a speech to the Fabian Society, Mr Balls said on Saturday it was right for the wealthy to pay a greater share of efforts to pay down the deficit.
However, the high profile promise to tax richer voters more heavily will also provide Mr Balls with political cover – if he becomes Labour chancellor – to cut public spending and welfare payments.
Katja Hall, of the CBI business group, warned that a 50p tax rate would put talented people off coming to the UK to invest and create jobs.
Simon Walker, of the Institute of Directors, said Labour needed to drop its practice of “knee-jerk reversion to the old Socialist nostrums that so damaged Britain’s economy in the past”.
George Osborne cut the top rate of income tax from 50p – set by Alistair Darling in 2010 – to 45p in 2012, arguing that the additional band only raised about £100m a year.
Mr Balls questioned those figures and 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.”
In the speech, Mr Balls made a commitment to running a surplus on the current budget and to put national debt on a downward path by 2020 at the latest, although he said he would deliver on his promise “as soon as possible”.
He would also scrap George Osborne’s “discredited” rolling five-year plan to eliminate the deficit and would legislate for “tough new fiscal rules” within 12 months of the general election.
The shadow chancellor is under pressure to improve his economic credibility, with polls showing the Conservatives have opened a significant lead over Labour on questions of fiscal competence.
Labour’s proposed new fiscal mandate broadly tracks Mr Osborne’s timetable for eliminating the deficit in the next parliament and for bringing down the national debt, but appears looser in several respects.
The framework could allow the party more time to achieve a balanced budget and also provides for a Labour chancellor to borrow more than Mr Osborne to fund capital investment.
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
- Ed Balls
Mr Osborne has pledged to run an absolute surplus – including capital and day-to-day current spending – by 2019. Mr Balls is talking of only running a current budget surplus by the end of the next parliament.
Mr Balls’s speech committed the Labour party to bringing down national debt as a share of GDP by 2020, while Mr Osborne’s plans would achieve that objective by 2017.
However, much depends on the timetable set by Mr Balls for achieving his objectives in the next parliament.
He claimed that his new fiscal rules would be “binding” but aides said they would take the form of a political commitment rather than legal obligation.
One key plank of Labour’s fiscal mandate will be a statement on firm target dates for scrapping the deficit; Mr Balls will abolish Mr Osborne’s rolling five-year target which moves on another year at the time of every Budget.
Labour has already committed to matching the coalition’s day-to-day spending totals in 2015-16, as Mr Balls attempts to neutralise the key Tory attack line at the next election: “We’re on the right track; don’t turn back.”
Mr Balls adopted similar tactics ahead of the 1997 general election when, as Gordon Brown’s chief adviser, he advocated matching Tory spending plans for the first two years of the next parliament.