Ed Balls ‘plans £45bn tax raid in first budget’

LABOUR is planning a £45billion tax raid likely to include hikes in pensions tax, inheritance tax and capital gains tax, experts believe.

Well-placed City sources, who claim to be familiar with the thinking of senior Labour figures, say Shadow Chancellor Ed Balls wants to move quickly to cut the deficit further – without significantly cutting public spending.

Billions would be raised in the party’s first Budget with a string of tax hikes, they predict. Labour has pledged not to increase VAT, rates of National Insurance or the 20p and 40p rates of income tax – meaning the squeeze will have to come in other areas.

A ‘longlist’ of options circulating in the City includes restricting tax relief on pension contributions, the abolition of mortgage interest relief on buy-to-let properties and an increase in capital gains tax from 28 per cent to 40 per cent.

City experts warned many of the policies would be ‘disastrous for business’. David Buik, an analyst at stockbroker Panmure Gordon, said: ‘This appears to be a recipe for financial Armageddon – absolutely disastrous for business.

‘The City of London as a driver of business, trade and for raising capital would be an arid desert of despair within six months. I shudder to think of the ramifications. These measures would be political suicide.’

‘Recipe for financial

Armageddon’

Independent economists have warned that taxes would be £12billion a year higher under Labour’s plans than those of the Conservatives – equal to £400 per taxpayer or £1,052 for every working household.

But City sources believe Mr Balls wants to go even further and quickly raise much more, with a rapid £45billion ‘fiscal consolidation’. One said: ‘All of this will apparently enable Labour to claim they’ve halved the deficit they inherited “at a stroke” when it took George Osborne five years to halve the deficit he inherited.’

Labour is understood to have taken advice from external City advisers. Some of the tax hikes on the list, circulated last month and seen by the Mail, have since been all but ruled out. They include a ‘significant’ fuel duty increase, which Mr Balls last week said he did not plan to increase above inflation.

Under pressure from the Tories, the Shadow Chancellor this week also said he did not plan to scrap the £42,385 National Insurance ceiling, which would mean the 40 per cent income tax rate effectively becoming 52 per cent. However, other tax rises on the list have not been rejected by Mr Balls and his colleagues. Slashing pension tax relief for millions of middle- class workers has been backed by shadow work and pensions secretary Rachel Reeves. In a collection of essays on future Labour policy, published in 2011, she said people paying 40p tax are receiving too much tax relief – and warned that Labour would make the system ‘more progressive’.

Speaking at a debate organised by the Society of Pension Professionals in March, shadow pensions minister Gregg McClymont said Labour’s published plans were ‘not the last word’ on pensions tax relief.

Slashing pensions tax relief for higher rate taxpayers to the standard rate would save the Treasury about £7billion a year but wreck the pensions of millions of workers.

Someone on higher rate tax saving £200 a month for their pension currently has it topped up to £333 by the state. If pension relief were reduced to the standard rate, their pension would be £1,000 shorter a year.

Work and Pensions Secretary Iain Duncan Smith said: ‘ Working people be warned: if Ed Miliband gets into Downing Street on May 8, he’s coming after your hardearned money.’

John Neill, chairman and chief executive of industrial giant Unipart, said: ‘The only way to balance the books is through growth. Nothing else will really solve this problem.’

A Labour spokesman said: ‘This is utter nonsense. None of these measures are in our manifesto and none of them are being considered for future Labour Budgets.’