Britain’s opposition Labour Party will reverse a tax cut made by Prime Minister David Cameron’s coalition government to bring the country’s deficit down in a “fairer way” if it wins the 2015 election.
The top rate of tax will be raised back to 50 pence from 45 pence in the pound on incomes of more than 150,000 pounds ($247,000), Ed Balls, Labour’s treasury spokesman, said today in a speech in London. The party said it would introduce a 10 pence starting rate, lowering taxes for 24 million working people on middle-to-low incomes.
Labour will eliminate borrowing except for investment “as soon as possible” in the next parliament, bringing the budget back into surplus, and start reducing the national debt, with the timing dependent on the state of the economy, Balls said at the annual conference of the Fabian Society.
“We won’t be able to reverse all the spending cuts and tax rises that the Tories have pushed through,” Balls said. “We will have to govern with less money, which means the next Labour government will have to make cuts too.”
With the election due within 16 months, Balls is seeking to convince voters that Labour is serious about controlling the public finances after it left office in 2010 with the deficit at a record 11 percent of economic output.
Chancellor of the Exchequer George Osborne says a resurgent economy has vindicated his austerity program and is pledging to return the total budget to surplus by 2020 if re-elected. Labour says the rising cost of living means most people aren’t feeling the benefits of faster growth.
“Tory claims their plan is working are not going to wash with working people who are seeing their living standards falling and for whom this is no recovery at all,” Balls said. “But we must make sure the sums add up. We cannot and will not duck the hard choices ahead.”
The previous Labour government “got us into a mess by spending too much, borrowing too much and taxing too much,” Sajid Javid, financial secretary to the Treasury, said in response to today’s speech. “Labour would put the recovery at risk, drive away investment and put our economic security at risk.”
Balls was also reaffirming a commitment to maintain the existing spending ceiling for 2015-16, the year following the election, as a “starting point.” He also announced that proceeds from the sale of government stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc would be used to cut debt.
With house prices soaring in London and the southeast, Balls called on the Bank of England to “urgently” review how the government’s Help-to-Buy program is working and to target its impact. Taxpayer guarantees allowing people with minimal deposits to buy homes costing as much as 600,000 pounds “cannot make sense,” he said.
Balls said his Labour colleague, Chris Leslie, is undertaking a review of public spending. He also announced the party will legislate for fiscal rules within a year of the general election, and scrap the idea of rolling five-year targets.
The Office for Budget Responsibility forecast last month that public-sector net debt would peak at 80 percent of gross domestic product in 2015-16 and start falling the following year. It sees the total budget deficit falling from 6.8 percent of GDP in the current fiscal year and returning to surplus in 2018-19.
The current budget, which excludes net investment, is forecast to fall from 5.3 percent of GDP this year and return to surplus in 2017-18.
Balls reiterated his demand for the OBR, Osborne’s fiscal watchdog, to audit the cost of the spending and tax measures proposed by Labour.