PM goes on attack after shadow chancellor defends Labour's economic record, while City leaders criticise 50p tax rate plan
David Cameron has laid into Ed Balls for having "learned absolutely nothing" since the financial crisis after the shadow chancellor said he was proud of public spending under Labour.
The prime minister repeated his familiar warning that Labour would crash the economy after a number of business leaders, many of them Tory donors, lined up to criticise Balls for pledging to bring back the 50p top tax rate.
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, said 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".
Despite the criticism from City tycoons, Balls argued that Labour is not "anti-business" but "anti-business-as-usual".
He 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.
But in a battle that is likely to be played out repeatedly in the runup to the general election, Cameron insisted that the economic crisis was fuelled by too much debt.
"You saw what Ed Balls said yesterday, which as far as I can see was that if he had his time over again, he would probably spend even more," he told the Today programme.
"I think these people who seem to have learned absolutely nothing from what went wrong with our economy, that the problems were based on too much borrowing, too much spending, too much debt, and they're really saying: 'If you gave us the key to the car, we would drive it in exactly the same way into exactly the same wall'."
Cameron also gave an upbeat assessment of the economy before publication of Tuesday's figures on growth. He said there was no need to be too gloomy about poor balance-of-payment figures and suggestions the upturn is fuelled by higher consumer spending.
"Do I want to see more growth outside London and the south-east? Yes. Do I want to see more export-led, more manufacturing growth? Yes, absolutely, and that's all part of the long-term economic plan," he said.
"But the economy is moving and above all it's creating jobs … so we're seeing a recovery in jobs, which is a good way to start."
On Saturday, Balls criticised the coalition for failing to bring down the deficit enough and allowing years of no growth.
He also gave a binding commitment that a Labour government will be running a budget surplus by the end of the next parliament, putting himself under pressure to deliver big public spending cuts if the party wins the next election.
It means Labour will face the dilemma of either raising taxes after 2015 or adopting a similar daunting level of cuts in day-to-day departmental spending to that proposed by the chancellor, George Osborne.
Balls said a 50p top rate of tax for those who earn more than £150,000 was a fair way to demonstrate that everybody is playing their part in the recovery.
Amid complaints from business people 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.
As Labour came under attack from the City, the previous chancellor, Alistair Darling, was among those to come out in favour of the tax rise "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 Osborne because the deficit reduction was 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 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's 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 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 learned 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 Ed Balls's thinking would not get him a pass at GCSE economics."
Xavier Rolet, head of the London Stock Exchange Group, added concerns about the effect 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, the electronics tycoon Sir Maurice Hatter, branded it a bad move and "a stupid message to send".
Labour MPs rallied to Balls's defence. David Hanson, a shadow immigration minister, said: "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.