Page last updated at 23:55 GMT, Sunday, 23 November 2008

Top earners face income tax rise

Alistair Darling
Mr Darling is to announce his economic rescue package on Monday

Chancellor Alistair Darling is due to announce in his pre-Budget report that he intends to raise the top rate of income tax, the BBC has learned.

BBC political editor Nick Robinson said the move would break a Labour pledge held ever since Tony Blair came to power in the 1997 election.

He said sources suggested that after the next election a new 45% rate could apply to incomes above 150,000 a year.

The government has not confirmed any of the details.

'Symbolic significance'

Mr Robinson said the pledge not to raise either the basic or top rate of tax was repeated in Labour's 2005 manifesto.

He said he understood a top rate increase would be delayed until after the next election, possibly in 2010.

This would allow Labour, if it wins the election, to claim it has not broken its 2005 promise and it had a new electoral mandate, he said.

He described a rise in higher earners' income tax as of "huge symbolic significance", but stressed it would only raise a fraction of the sum needed to get the public finances back in order.

It is unclear how much a new tax rate could raise, but a Treasury answer to a Parliamentary question in 2006 suggested a 45% rate on people earning more than 150,000 would have raised 1.2bn.

The Conservatives have warned such a move would drive businesses out of the UK.

The Liberal Democrats welcomed the news but urged ministers to close loopholes and remove tax advantages enjoyed by the very rich.

There has been much speculation about the specific details of Mr Darling's pre-Budget report, to be unveiled on Monday afternoon.

The government's strategy risks hobbling the economy even more and scaring off potential investors when we need them most

Matthew Elliott, Taxpayers' Alliance

However, it is expected he will announce short-term tax breaks to stimulate the economy including a temporary cut in VAT from 17.5% to 15%.

The prime minister has so far refused to confirm a VAT cut, but did say there would be "substantial" measures to pump money into the economy.

Tory leader David Cameron has warned the government's plans will lead to a future "tax bombshell".

Experts say the government will have to increase borrowing to record levels of 100bn or more, which the country will have to pay back later in higher taxes - and there is no guarantee tax cuts will get consumers spending again.

News of an income tax rise is being met with mixed reactions.

The Taxpayers' Alliance described the move as "a totally backward step".

The economy will go back to the dark days of the 1970s - taxing the rich is such a stupid idea
Matt, Manchester

Its chief executive Matthew Elliott said: "To recover from the recession, Britain needs to be a low tax, competitive economy, not one that punishes success.

"The government's strategy risks hobbling the economy even more and scaring off potential investors when we need them most."

Conservative MP Michael Fallon said: "We want Britain to be an attractive country for people to come and do business in and for the last 15, 20 years there's been a consensus that you shouldn't increase the top rate too much.

"Now that's all been broken tonight," he told BBC's Radio 5 Live.

The Labour chairman of the Treasury select committee, John McFall, said it showed the government was listening to people's concerns about inequalities in the tax system.

He said hard-working and middle-class people have felt their income strained and a lack of fairness in the tax system, particularly with "people making hundreds of millions of pounds paying less tax than the ordinary person".

"So they're saying, come on, let's look at this thing again, fairness must prevail here. And I think that that argument is maybe getting through to Alistair Darling."


But not all Labour MPs were satisfied. Left-wing Labour MP, John McDonnell, who challenged Gordon Brown for the party leadership, welcomed the change but said it did not go far enough.

"I think people think the taxation system is unfair.

"It's penalising the ones on low pay and middle-ranking pay and now what we need to do is introduce forms of wealth taxes but also to tackle the corporate sector which is avoiding so much tax."

Liberal Democrat Treasury spokesman Vince Cable said now the government has realised the tax system was unfair, ministers should focus on closing loopholes and removing tax advantages that the richest currently enjoy.

"The avoidance opportunities and reliefs become even more important if a higher tax rate is introduced," he added.

But he warned that by itself an increased tax rate on those earning more than 150,000 would only raise "negligible amounts" of additional revenue.

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