Page last updated at 09:54 GMT, Friday, 19 March 2010

Mandelson denies post-election tax rises planned

Lord Mandelson
Lord Mandelson said no chancellor could have his hands "bound"

Lord Mandelson has sparked speculation Labour will put taxes up again if they win the election after saying economic conditions could make it "necessary".

The business secretary immediately sought to play down the remarks, made at a business conference in London.

He said he did not mean Labour had "other tax plans" in addition to those already announced.

The Conservatives have claimed Labour is in "chaos" ahead of Wednesday's pre-election Budget.

Chancellor Alistair Darling announced a raft of tax rises in November's pre-Budget report including a further 0.5p rise in national insurance contributions from April 2011 - in addition to the 0.5p rise already announced - and a one-off 50% tax on bankers' bonuses.

In addition, the increase in income tax to 50% for those earning more than £150,000 comes into force next month.

However, speculation has continued that further tax rises will be needed to meet Labour's commitment to halve the deficit by 2014.

Economic circumstances

Speaking on Thursday, Lord Mandelson said the issue would have to be addressed next year when ministers hold a spending review and the state of the economy had become clearer.

"We will prepare for that in a way that will enable us to judge much more carefully... what we have to do, what the economic circumstances require, both in raising taxes, should that be further necessary in addition to what we have already announced, or cutting public expenditure in ways that will be dictated by the size of the deficit at the time," he said.

I made absolutely no suggestion or prediction that taxes would go up that year or next year
Lord Mandelson

However, Lord Mandelson later insisted that did not mean that further tax rises were in the pipeline in addition to the "fairly targeted" increases already announced.

"I made absolutely no suggestion or prediction that taxes would go up that year or next year," he said.

"Obviously no chancellor is going to bind his hands....but there is absolutely nothing that I said that suggested or implied that we have other tax plans that we are going to bring out at a future time."

Neither Labour nor the Conservatives have been prepared to rule out further tax increases as a way of reducing the record peacetime deficit but the Tories say action on cutting spending must begin this year - something Labour say will imperil the recovery.

The Lib Dems have said they would look to bring down borrowing through spending cuts rather than tax rises.

'Disciplined Budget'

The Conservatives said Lord Mandelson's comments showed confusion within Labour about how to meet its deficit commitment.

"First the chief secretary [Liam Byrne] was forced to backtrack and admit Labour would not rule out VAT increases," said its shadow Treasury Secretary Philip Hammond.

"Now Peter Mandelson admits there may be tax rises in the second year of a new Labour government."

Lord Mandelson said Mr Darling would show the "the greatest responsibility and discipline" in his Budget - which comes just weeks ahead of the likely start of the election campaign.

Economists suggest the chancellor may have more leeway than initially anticipated in the Budget after figures published on Thursday showed public borrowing was lower in the past two months than anticipated and amid signs that the amount of revenue generated by the bank bonus tax could be much larger than predicted.

The Conservatives have urged Mr Darling to deliver an "honest" Budget and not to use it for a series of pre-election "giveaways".

Mr Darling has insisted his tax and spending package will be "sensible" and "reflect the times in which we live".

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