Hain sparks controversy over taxation

With the backlash over the Cabinet reshuffle slowly receeding into the background, the newly installed Leader of the House Peter Hain has shifted the focus onto taxation – and sparked controversy by suggesting that there should be a new 50% top tax band.

In a speech due to be aired on Radio 4 today, Peter Hain will say that taxes for the rich should increase in order to allow middle and low-income earners to pay less. He says said that average incomes of key workers such as teachers and police officers are now falling into the higher 40% band – which could whittle away hard-fought public sector wage increases.

For Mr Hain, people earning more than £50,000 should expect to pay a 50% rate on earnings, with the possibility of a 60% rate above £100,000.

Currently, the basic rate of tax is 22% on earnings up to £35,115, moving to 40% above that mark - but in Mr Hain's view the lower-band ceiling should be shifted up to £50,000.

According to the Leader of the House: "We face a situation where the top 40% rate of tax now catches too many middle-income employees, including teachers and police… This presents us with hard choices.

"How can we ensure that hard-working middle-income families and the low paid get a better deal, except by those at the very top of the pay scale contributing more?"

However, the Prime Minister and the Treasury were quick to distance themselves from Mr Hain’s remarks.

Speaking from a EU Summit in Greece, Mr Blair insisted that his government had no intention of changing tax levels.

He said: "Tax policy is not going to change. We are not going to be raising the top rate of tax."

He also reassured the public that his government had not spent 10 years ensuring that tax levels were not raised to the top level for it to be changed now.

The Treasury too was keen to point out its commitment to honouring the Labour Party’s manifesto, especially its pledge not to raise the top level of income.

A Treasury spokesperson added: "It is the Chancellor in Budgets that makes decisions on taxation.”

Despite Mr Hain’s claim that the prime minister’s office knew about his speech, a spokesperson for the Treasury disagreed, saying that "at no point" has Mr Hain raised this issue with the Treasury.

The Conservatives have dismissed Mr Hain remarks, maintaining that his speech represented “the slipping of the last veil of New Labour”.

Mathew Taylor, spokesman for the Liberal Democrat treasury, welcomed Hain’s proposal for fairer tax levels but admitted that they would “hit too many people too hard”.

(MM)