Shadow chancellor defends plan to restore higher tax rate, saying it is not anti-business
Ed Balls has hit back at accusations that Labour is anti-business for bringing back the 50p top rate of income tax for those earning over £150,000, suggesting it should be only a temporary measure.
Amid complaints from City tycoons and donors about a return to the days of Labour kicking the rich, the shadow chancellor won the backing of senior party figures on the understanding the main purpose of the tax rise is fairness at a time of spending restraint.
Defending his policy against a backlash from business, Balls stressed he wanted "lower tax rates" but keeping the 45p rate would be foolish and breed resentment at a time of austerity.
"It's absolutely not back to the 1980s or the 1990s," he said, stressing that Labour would go no higher than a 50p rate for income tax.
In what appears to be a co-ordinated campaign against Labour's announcement, 24 company leaders, including Sir Stuart Rose, the chairman of Ocado and Sir Ian Cheshire, the chief executive of the DIY group Kingfisher, warned in a letter to the Telegraph that it would threaten the recovery and cost jobs. They said the 50p rate "will have the effect of discouraging business investment in the UK" and would be a "backward step".
In the same paper, London mayor Boris Johnson described Balls' plan as stupid and urged the government to cut the top rate to 40p.
As Labour came under attack from the City, Alistair Darling, a former chancellor, was among those to come out in favour of the move "in the context of reducing the deficit" during the next parliament.
Darling said he had brought in the 50p rate under Gordon Brown on a temporary basis and did not view it as a good long-term position. But he agreed it should be brought back after being axed by George Osborne, because the deficit reduction is taking far longer than expected.
"When you're talking about reducing the deficit, there are quite substantial cuts that are slated to come in after the next election, it just seems to me you need to be fair about this so that people with the broadest shoulders carry their fair share of the burden," he said.
The veteran Blairite Lord Adonis also backed the plan. "Deficit reduction must be done in a fair way," he said. "At a time when the incomes of ordinary families are falling, the priority should not be tax cuts for the highest earners, but help for those on middle and low incomes."
Balls' emphasis on a 50p rate purely to bring down the deficit appears to water down Ed Miliband's argument in 2010 that the party should "keep the 50p rate permanently".
"It's not just about reducing the deficit, it's about fairness in our society and that's why I'd keep the 50p tax rate, not just for a parliament," the Labour leader said just after the last election.
Miliband appears to have softened his stance since then. Sources close to the Labour leader said his view now is that he wants "tax fairness" to be permanent, but the actual rates of income tax should be set according to circumstances.
Surveys at the weekend suggested the move is popular with voters, even among Conservatives, with six in 10 people backing a 50p top rate of tax and fewer than one in five against, according to Survation.
However, among the critics were two former Labour ministers, Lord Jones and Lord Myners, who said it was not a good economic move. Lord (Digby) Jones of Birmingham, who was a trade minister under Gordon Brown, said the policy would be popular but constituted another attempt to "kick" wealth creators.
"It's great politics but it's lousy economics," Jones told the BBC. "I learnt a long time ago not to believe what politicians say but to watch what they do, it's their behaviour that tells you what they really believe.
"In the last few months we've got 'if it creates wealth let's kick it', really go for energy companies, really go for housebuilding, bankers – this time it's going to be high earners. Are we talking politics or are we talking what's right to create wealth and jobs in the nation?"
Myners, a former Labour City minister, said the move would take the party "back to old Labour and the politics of envy". He added: "The economic logic behind his Ed Balls' thinking would not get him a pass at GCSE economics."
Xavier Rolet, head of the London Stock Exchange Group, added concerns about the impact on jobs and boosting the economy. "The right tax rate for entrepreneurs is what motivates investments," he told Sky News. "There are worries and certainly concerns that we do share that increasing the taxation – reversing, if you want, the measures that have been taken in the last few years – could impact not only foreign but also domestic investments."
One Labour donor, Lord Noon, indicated he would raise concerns with Miliband personally, while another, electronics tycoon, Sir Maurice Hatter, branded it a "bad move" and "a stupid message to send".
But Labour MPs rallied to Balls' defence, with David Hanson, a shadow immigration minister, noting "everyone complaining about Labour's proposed 50p tax rate appears to be one of 1% of earners who will pay it".
Amid reports of tensions within the shadow cabinet, no Labour MP has broken rank to criticise the policy publicly. According to sources, some shadow cabinet ministers sceptical about the move have been won round by the argument that the 50p rate will only be in place for as long as the deficit is.
Sources close to one shadow minister said the higher rate was "not ideal" when it came to attracting business, but he could accept it on a short-term basis for showing the party will spread the burden across all sections of society.
Balls unveiled his plan during a speech at the Fabian Society on Friday and hit back at criticism on the BBC's Andrew Marr Show, saying it was a fair way to demonstrate that everybody is playing their part in the recovery.
"I've had very many businesspeople say to me over the last year or so, they say: 'We want to get the top rate of tax down' – well, of course they do. I want lower tax rates," he said. "But they also say to cut the top rate of tax when the deficit is still high and when ordinary people are seeing their living standards fall is foolish and actually breeds resentment, and I want to do the opposite of that. I want to say, look, pro-business, pro-investment, pro-market but pro-fairness, let's get the deficit down in a fair way and make the reforms to make our economy work for the long term."
Balls also gave a staunch defence of Labour's record on the economy, saying there was no problem with public spending, the deficit or national debt before the financial crash of 2008. In a challenge to the Conservative narrative about the causes of the economic crisis, the shadow chancellor said he was proud of Labour's public spending under the last government, which led to improvement in the NHS, schools and police.
Asked whether he had any regrets about Labour's spending, Balls said the party might have done some things differently but its level of expenditure was not the cause of Britain's recession.
"There would be some spending things we wouldn't do, some spending things we would do differently, some areas we'd spend more. But do I think the level of public spending going into the crisis was a problem for Britain? No, I don't … What happened was a global financial crisis which pushed up the deficit.