Labour’s shadow chancellor has pledged to reinstate the top income tax band and spend the proceeds on increasing the number of doctors and nurses in the National Health Servicre as the UK’s main opposition party sought to put clear blue water between it and the ruling Conservatives.
Rachel Reeves told delegates at Labour’s annual conference in Liverpool that the move on Friday by chancellor Kwasi Kwarteng to scrap the 45 per cent rate was the wrong priority during a cost of living crisis, describing it as “a tax cut for the wealthiest 1 per cent”.
Ms Reeves said a Labour government would use the £2 billion (€2.2 billion) raised from reimposing the top band, which applies to earnings of over £150,000, to tackle the acute staffing crisis in the NHS.
The money would fund the training of more than 5,000 new health visitors, create another 10,000 nursing and midwife placements every year and double the number of medical students.
She accused new prime minister Liz Truss of abandoning the previous Tory government’s “levelling up” agenda, designed to rebalance the economy away from London and the south-east. Instead Ms Truss was pursuing “trickle-down economics” under which taxes are tweaked to help wealthy people generate broader economic growth. “That idea has been tried, has been tested and has failed,” she said.
Ms Reeves said as chancellor she would maintain a tight grip on Britain’s public finances, in contrast to Mr Kwarteng who last week announced more borrowing than at any budget since 1972 at a time when inflation was already high and interest rates were rising.
The so-called mini-budget rattled markets as investors sent sterling plunging and gilt yields spiking. “The message from financial markets was clear on Friday, and this morning that message is even more stark: sterling is down. That means higher prices as the costs of imports rise,” she said.
“The cost of government borrowing is up ... and in turn that means the cost of borrowing for working people will now go up too, with higher mortgage repayments for families.”
Ms Reeves said a Labour government would ensure all of its policies were “carefully costed and fully funded”, as she accused the Conservatives of breaking their own fiscal rules 10 times in the 12 years they have been in power.
The shadow chancellor lambasted the Tories for the “more than £50 billion piled on to the national debt every single year, because of their reckless decision to put all the costs on to borrowing”.
Ms Reeves said a Labour government would also reverse Mr Kwarteng’s £17 billion-a-year cut to corporation tax but would keep the chancellor’s other two big reductions: a £13 billion cut to national insurance and in the basic rate of income tax by 1p next April to 19p, worth £5 billion.
Labour leader Keir Starmer decided over the weekend to retain the new 19 per cent basic income tax band, realising that a commitment to restoring it to 20 per cent would be seized on by political opponents as an attack on the lowest-income workers.
One of the biggest differences in economic policy between the British government and the opposition at present is instead over the scale of measures to address the energy crisis.
The government said on Friday that its scheme to cap energy prices would cost £60 billion for just six months. The bailout – made up of £31 billion for households and £29 billion for businesses – will largely be paid for through huge amounts of borrowing.
Labour’s energy rescue plan would have cost only £29 billion over the same period because it would have been targeted only at households. The party said it would have been funded by extending the existing energy windfall tax, scrapping the government’s universal £400 payment this autumn and by lowering state debt repayments because the intervention would have cut inflation.
Labour would only have put up a £1 billion support package for businesses aimed at energy-intensive industries and offered a further £1 billion cut in business rates for small companies – paid for by a £2bn rise in the digital services tax. – Copyright The Financial Times Limited 2022