Election 2017: Labour rules out tax rises for 95% of earners

Election 2017: Labour rules out tax rises for 95% of earners

Labour is pledging not to raise income tax for those earning less than £80,000 a year as part of a “personal tax guarantee” for 95% of taxpayers.

Shadow Chancellor John McDonnell will vow to protect low and middle earners by also ruling out rises in VAT and employee national insurance rates.

But he will say the top 5% of earners will pay more to fund public services.

The Tories, who have also ruled out a rise in VAT, say there is a £45bn black hole in Labour’s tax proposals.

Theresa May has said she has “no plans” to raise other taxes after the election. But she has so far declined to say whether a manifesto pledge not to raise direct taxes ahead of the 2015 election will be retained this time around.

Chancellor Philip Hammond appeared to distance himself from the commitment when he said recently that “greater flexibility” would be needed in future to pay down the deficit and reduce levels of debt.

After a poor showing in Thursday’s council elections, Labour has admitted that it faces a “historic” challenge to win the snap election on 8 June but Mr McDonnell has urged the party to “come out fighting”.

In a major speech on Sunday, he will argue Labour is on the side of working families and seek to reassure middle earners about his plans. At the same time, he will accuse his opponents of keeping people “in the dark” about their own intentions.

If Labour wins power, he says 95% of taxpayers will see no rise in their overall tax burden until 2022 by ruling out increases to the standard 20% rate of VAT, personal national insurance contributions and income tax rates for those earning under £80,000.

However, he will say those earning more than £80,000 will have to pay more, without giving specific details. At the moment, those earning more than £150,000 pay 45% tax on earnings above that level.

“The choice at this election is very clear on tax as there is currently only one party which is committing not to raise taxes on middle and low earners,” he will say.

“The Labour Party is now the party of low taxes for middle and low earners while the Tories are the party of tax handouts for the super-rich and big corporations.”

‘Run and hide’

Mr McDonnell, who has already signalled he would reverse cuts to capital gains tax, corporation tax and inheritance tax in the 2016 Budget, will contrast the certainty around Labour’s plans with what he says is obfuscation from the Conservatives.

“Every time Theresa May and the Conservatives are asked whether they are planning tax increases if they are re-elected on 8 June, they run and hide,” he will say.

“The Tories are hoping that the British people can be kept in the dark about what the tax increases they are planning will mean for those on middle and low incomes, who have had to bear the brunt of seven years of austerity.”

In early skirmishes over Labour’s tax plans, Mr McDonnell has accused the Conservatives of telling lies.

Labour’s spending commitments include recruiting 10,000 new police officers, giving NHS workers a pay rise of more than 1%, reinstating training bursaries for student nurses, bringing back the educational maintenance and carers allowances and restoring student grants.

The majority of these, it says, will be covered by the reversal of cuts to corporation, capital gains and inheritance taxes.

But its plans to boost police numbers were thrown into confusion last week when shadow home secretary Diane Abbott said in an interview that they would cost £300,000. The party later clarified that she had meant to say £300m a year by 2020.

The Conservatives are not expected to confirm their own plans until their manifesto launch later this month.

Mr Hammond was forced to abandon proposals in March’s Budget to increase national insurance contributions for the self-employed following a Tory rebellion, with MPs claiming the move breached its 2015 manifesto.

‘Gaping holes’

During the coalition years, the focus of Conservative policy was steady increases in the personal tax allowance, the point at which people start paying income tax. The threshold rose to £11,500 last month and is due to increase to £12,000 by 2020.

After winning the 2015 election, the Conservatives also raised the level at which people start paying income tax at 40% – which has now reached £45,000 – to address the growing number of middle earners being pulled into the higher-rate bracket.

The Taxpayers Alliance campaign group said Labour’s plans “sounded good” but there were “gaping holes” which could potentially allow it to increase employers’ national insurance contributions and VAT on zero-rated items such as medicines.

Raising income tax for those earning more than £80,000 would require “very significant” changes to tax thresholds, it said.

“A better way for the parties to demonstrate they are on the side of taxpayers would be to pledge to cut the overall tax burden and leave more money in the pockets of those who earned it,” said its chief executive John O’Connell.

For the Conservatives, Chief Secretary to the Treasury David Gauke said: “Jeremy Corbyn will have to raise taxes because his nonsensical economic ideas don’t add up and he’ll make a mess of the Brexit negotiations.

The Lib Dems have pledged to put 1p on income tax to pay for increased health spending.

Treasury spokesman Susan Kramer said: “John McDonnell has no credible plan for the future of our economy and no guarantee to employers that they won’t be hit with a jobs tax.”

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