Ed Miliband MP, Leader of the Opposition, said at a press conference at the Royal Festival Hall today:
Next week’s Budget will take place against a backdrop of:
More people looking for work than at any time for seventeen years.
Twice as many young people out of work for more than six months compared to a year ago.
Growth having stalled for the past eighteen months.
And living standards facing an unprecedented squeeze.
Every month people are finding their wages stuck but their costs rising.
In short, we have an economy not working for working people.
But there is no evidence that this Conservative-led Government is equal to this challenge.
Because what are they arguing about?
Not about how to get growth moving.
Not about how to get more jobs into our economy.
But agonising about how and whether to cut the 50p tax rate for those earning over £150,000.
It just shows how out of touch they are.
What we need is a Budget for jobs and living standards.
That means three things.
First, measures in the short term to get growth into our economy.
Second, a clear vision for how we reform our economy so that it works for working people.
Third, action to tackle the living standards crisis
Growth and jobs
First, the Budget should address the challenge of growth and jobs.
It should adopt a more balanced approached to deficit reduction.
The Government was warned not just by Labour but by economists up and down the country, about the risks of cutting too far and too fast.
Those warnings have unfortunately proved to be correct.
In the United States, President Obama set out a more balanced approach to deficit reduction.
One that supported the recovery.
As a result the US economy is growing, and unemployment is falling consistently.
So the Budget is a chance for George Osborne to think again, and do the right thing.
Economy that works for working people
And second we need a Budget that puts in place the building blocks for the future of our economy.
This Government gives no sense of where they want the country to be in 5, 10 or 15 years time.
Vince Cable himself said, in his leaked letter to David Cameron and Nick Clegg, that the Conservative-led Government lacks "a compelling vision of where the country is heading”.
It’s clear what that should be: a more responsible capitalism, an economy that works for working people.
But you can see their failure on this across every area of Government policy.
A Budget for the long-term future of our economy would:
Address the crisis of youth unemployment, which the Government has singularly failed to do.
Grasp the need for radical reform of our financial sector with a British Investment Bank, which the Government refuses to back.
Understand the opportunity of the green economy – where their haphazard decision making has left business without the certainty it needs.
Put in place new rules on procurement to support business that provide apprenticeships.
And set out a shared active industrial policy across every area of government.
People deserve a long-term view of where our economy is going and how it can be made to work for working people.
Because of ideology and short-termism, this Government cannot provide it.
A Labour Budget would do so.
Third, the Budget should take action to ease the squeeze on middle and lower income families, particularly those with children.
This Government promised that we were ‘all in it together’ but that promise has been betrayed.
All of the research shows that they are hitting families with children the hardest, with those on the middle and low incomes suffering the most.
Even before the Budget, their measures will hit a family with children by an average of £530 a year from this April because of the way they have chosen to cut the deficit.
You’d have thought in this context there would be no question of the priority being to cut taxes for the very richest.
But this Government has spent the last few weeks arguing over the political cover they need to cut the 50p rate.
As I said at the outset, how out of touch can a government be?
Indeed as Ed Balls will show, the Government have actually been cutting taxes for those at the top, through changes to pensions tax relief.
Ed has also called for a clampdown on stamp duty avoidance to reverse the iniquitous decision to take working tax credits away from up to 200,000 working couples trying to do the right thing.
By adopting a fairer approach on pensions tax relief, the Government could have further resources available to help millions of lower and middle income families.
That is part of delivering fairness in tough times.
Because tough times expose your choices, your values, whose side you’re on.
Ahead of this Budget, Labour is the only party saying:
Cutting the 50p tax rate for those over £150,000 is the wrong priority for Britain.
The priority must be to reverse the damaging cuts to tax credits.
The cuts that tell working people it’s not worth working.
That tell working women affordable childcare is out of reach.
And that tell working families you’re on your own.
We need a Budget with a clear vision of how our economy can work for working people.
And now Ed will say more about our priorities.
Ed Balls MP, Labour’s Shadow Chancellor, said:
As Ed has set out, there are two tests for next week’s Budget: on jobs and growth, to kickstart our economy and put in place the long-term reforms we need; and on fairness, action so families on low and middle incomes do not bear the heaviest burden.
Jobs and growth
On jobs and growth, alongside the tough choices we have set out on tax, spending and pay and the long-term reforms Ed has highlighted, we have made the case for our five point plan:
Immediate and fair tax cuts for families and pensioners – with a temporary VAT cut the fairest and quickest option;
Genuinely bringing forward infrastructure investment;
A cut in VAT to 5% on home repairs, improvements and maintenance;
A one year national insurance holiday for small firms taking on extra workers – using the almost £1 billion left over in the government’s failed scheme only for new firms;
And 100,000 jobs for young people and 25,000 affordable homes – funded by a £2 billion tax on bank bonuses.
We need this action now to get our economy growing, to create desperately needed jobs and so to get the deficit down.
As George Osborne is finding to his cost, slow growth and high unemployment means he is borrowing £158 billion more than he planned. His pledge to balance the books by 2015 is now in tatters.
But it’s not just a short term cost we will pay for this failure on jobs and growth.
Months and even years of slow growth and rising unemployment will cause long-term damage to our economy leaving a permanent dent in our nation’s prosperity as other countries race ahead of us.
And on the second test, fairness and the squeezed middle, we set out last week the perverse and unfair changes the Government is making to tax credits and child benefit.
We have called for an urgent review of the child benefit changes – which we have shown would mean that a family on £43,000, where Mum or Dad stays at home to look after the kids, would lose all their child benefit; but where a two earner families with a combined income of £84,000 could keep all of theirs.
And on tax credits, we have proved that for many part time workers, once their tax credits are removed, they will be better off quitting work and going on to benefits.
We would reverse that measure and we believe that the full cost can be met by closing the stamp duty loophole on properties over £1 million.
But there is more action the Chancellor can take in his Budget to ensure that those on low and middle incomes do not bear a disproportionate burden.
If the Chancellor is looking at a mansion tax then, as I said last week, we will support him and I have offered to work with the Chancellor to get the details right.
But the priority for funds raised from a mansion tax must be to ease the squeeze on families on low and middle incomes, not to cut the top rate of tax for those earning over £150,000.
With lower and middle income families being hit hard by rising petrol prices, energy bills and taxes, how can cutting taxes for those above £150,000 be the priority now?
No particular tax rate should be permanently set in stone.
But it tells you everything you need to know about David Cameron, George Osborne and Nick Clegg that their main discussions before the Budget seem to be not about how to stop this tax credits bombshell or come up with a plan for jobs and growth, but whether and how they can give a tax cut now to the richest one per cent of earners.
Pensions tax relief cut for highest earners
But we should not be surprised – because today, based on new research, we can reveal that the Chancellor has already given top rate taxpayers a £1.6 billion tax cut since he entered Downing Street.
When Labour introduced the 50p higher tax rate band for the top 1% of earners, starting at £150,000, we also announced changes to restrict pension tax relief for individuals in that new band.
Instead of claiming 50 per cent relief on their pension contributions, we said those individuals with incomes of more than £150,000 a year should only be able to claim 20 per cent relief, just like basic rate taxpayers.
This measure was due to raise £4 billion per year, and it was one of the decisions we took to ensure that those with the broadest shoulders played their part in reducing the deficit.
That change was reversed by George Osborne in his 2010 Budget.
The Chancellor announced that he would still be raising £4 billion from restricting pension tax relief – but he would so instead by reducing the cap on annual pension contributions from £255,000 to £50,000, and reducing the lifetime cap from £1.8 million to £1.5 million.
New research from the House of Commons Library, that we are publishing today, shows the effect of this change.
Instead of the £4 billion coming from top rate taxpayers earning over £150,000, this research shows that now only £2.4 billion is coming from those top rate taxpayers who are still receiving tax relief at the 50p rate.
The remaining £1.6 billion is therefore coming from taxpayers with incomes below £150,000.
This effective tax cut of £1.6 billion for those earning over £150,000 is more than the £1.3 billion the new 50p top rate of tax was estimated by the Treasury to raise in its first year.
It shows just how out of touch this Government is, that with all the pressures on lower and middle income families in our country, it is the very highest earners who have benefited most from their pension tax changes.
So we have a simple proposition today.
Based on the House of Commons research, and taking into account the changes to the pension cap that George Osborne has already introduced, a reduction in the rate at which top rate taxpayers can claim pensions tax relief from 50% to 26% would be sufficient to reverse this tax cut – with the funds raised then available to help those on low and middle incomes.
Taking a deliberately cautious view, if the net revenue to the Exchequer from this change was £1.25 billion, then reversing this tax cut for people earning more than £150,000 would allow the Government to reinstate the cuts to working and child tax credits that the Chancellor chose to make in his Autumn statement when he announced his borrowing plans were £158bn off track.
Changes which meant that in the Autumn statement the Government took four times more from families than from the banks.
Of course, this revenue could be used in other ways – for example, to cut fuel duty; or to increase the personal allowance.
As we have said before, at a time when families are being squeezed hard and the economy has stalled, an increase in the personal allowance is better than doing nothing.
But as the IFS said just a few days ago, this is not the progressive measure Ministers claim it to be as “the highest average cash gain occurs in the second-richest tenth of the income distribution”.
Changes to the personal allowance will do nothing to help pensioners and others on low incomes who don't pay income tax.
They will do nothing to help the hundreds of thousands who are facing unemployment.
And they will do nothing to help families working 16 hours per week on the minimum wage who face losing up to £73 per week in working tax credits.
So this is the Budget challenge:
Action to help people on middle and low incomes and stop a tax credits bombshell for hundreds of thousands of working families.
And a real plan for jobs and growth, a long-term vision for our future economy that will help get the deficit down.
That is what we need in next week’s Budget: not more tax rises on ordinary families, not more empty promises on jobs, not more of the same from George Osborne.