Page last updated at 21:00 GMT, Thursday, 23 April 2009 22:00 UK

Tax rise 'not end of New Labour'

Gordon Brown: 'This is not taxation for its own sake; it is tax for a purpose'

The income tax increase for the highest earners does not mark the end of New Labour, Gordon Brown has insisted.

A 50p rate for earnings over £150,000, being brought in from next April, was a key part of Wednesday's Budget.

The Tories said it broke a key pledge, repeated in its 2005 manifesto, not to raise income tax and signalled the "death knell" of New Labour.

But Mr Brown argued New Labour was all about "helping people make the most of their potential" so it was not dead.

And Business Secretary Lord Mandelson told the BBC the Budget had reflected New Labour priorities of a "dynamic economy" and "fairness" on taxes.

'High uncertainty'

The new rate, announced in the Budget, breaks Labour's 2005 manifesto pledge not to raise income tax for high earners during this Parliament.

Chancellor Alistair Darling said it was necessary to help pay for declining revenues during the recession, with the government expected to borrow £175bn this year.

The government estimates the higher rate will raise £1.13bn next year.

The reversal of a Labour manifesto is not "bold action", it's business as usual.
Richard Kent, Sheffield

But the Institute for Fiscal Studies (IFS) think tank warned that there was a "very high degree of uncertainty" about the Treasury's calculations.

Speaking at a Prince's Trust event in east London, Mr Brown said: "If we are going to give people opportunities they need for the future, then there has got to be a contribution by those who have the most and who have gained the most over the last few years.

"This is not taxation for its own sake; it is tax for a purpose. This is Britain fighting back against the international recession. This is Britain taking bold action for recovery."

Mr Brown said he remained committed to the values which defined the New Labour project in the 1990s, which he had a key part in designing.

'Not honest'

But speaking on BBC One's Question Time, shadow chief secretary to the Treasury Philip Hammond said it was "the death knell of New Labour".

"Tony Blair and Gordon Brown back in the mid-1990s reached out beyond Labour's traditional core heartland of support and one of the totemic offerings that they made was not to raise the top rate of tax," he said.

"After 12 years in office Gordon Brown, facing a general election, is now clearly signalling a retreat back to shoring up the core Labour vote... with this crowd-pleaser."

The new higher income tax rate - an increase on the 45% proposed in last year's pre-Budget report - was brought forward a year by Mr Darling to begin in April 2010.

50% tax rate for earnings over £150,000
Big debt and deficit increases
Economy shrinks at record rate
Public spending squeeze planned
Books not balanced until 2018
2p on fuel, 1p on a pint of beer and 7p on cigarettes
£15bn public sector 'efficiency savings'
Claw back tax relief on top earners' pension
£2bn help for young unemployed
£1bn to boost housing market
£2,000 car scrappage scheme

The Conservatives are expected to face pressure from grassroots members to promise to scrap the measure if they come to power.

But shadow chancellor George Osborne told the BBC he could not promise to reverse it and that would not be "a priority".

He said Labour had "completely messed up the finances of the country", adding: "Yesterday all that you got was a fantasy Budget - a claim that you could deal with the country's massive debt problems by simply taxing people over £150,000.

"I don't think the chancellor is being honest with the British people about that and what they want from the Conservative Party, hopefully the next government, is some honesty, some straight talking about the problems this country faces and the answers."

'Bad headlines'

In the Budget, Mr Darling predicted the economy would return to growth by the end of 2009, expanding by 1.25% next year and 3.5% in 2011.

The International Monetary Fund put forward the more pessimistic prediction that the economy would shrink by 4.1% this year and by 0.4% next year.

Mr Darling said experts had made a "wide range of forecasts" and that his was within this.

Shadow chancellor George Osborne on how he would get Britain out of the recession

He added: "Today doesn't look good in terms of headlines and I've been resigned to that for some time, but I believe we do have reasons for confidence and we should not get ourselves into a position of believing otherwise."

Liberal Democrat Treasury spokesman Vince Cable said the Budget figures were "utter fantasy".

He added: "I just didn't understand where this spectacular growth rate, this 3.5% which they're assuming a year from now... came from."

The Institute for Fiscal Studies said that, when investment was taken into account, the Budget would mean a 0.1% real terms decline in public spending.

By 2017/18 the cost per family to bring the Budget back into balance would be £2,840, it added.

Downing Street disputed the figure, saying it was "not entirely clear" how it had been calculated.

But the Conservatives said the IFS calculations amounted to a "secret tax bombshell" of £1,430 a year for every family.

Meanwhile a YouGov survey for the Daily Telegraph suggests David Cameron has stretched his poll lead over Labour to 18% following the Budget.

The online survey of 1,896 adults across Britain put support for the Tories on 45%, Labour on 27% and the Lib Dems on 18%.

But it suggested most people, 68%, were in favour of the 50p tax rate.

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