Labour U-turn in tax cut chaos

Corbyn vetoes McDonnell in higher earner row

LABOUR will reverse Budget tax breaks for those earning more than £80,000, the party said yesterday – as splits emerged between Jeremy Corbyn and his Shadow Chancellor.

A senior Labour spokesman said that this week’s income tax breaks would be ‘clawed back’ from higher earners if Labour seizes power.

The partial U-turn is designed to head off a growing rebellion by Labour MPs over the leadership’s decision to accept the £9.6billion package of income tax cuts unveiled by Philip Hammond this week. It is worth £130 a year to basic rate taxpayers and £860 a year to those paying 40p tax.

Shadow Chancellor John McDonnell angered Labour MPs on Tuesday when he said: ‘We will support the tax cuts at the moment on the basis that it will inject some demand into the economy.’

Mr McDonnell accepted the cuts would benefit millionaires but added, ‘so it will a large number of middle earners as well’.

Labour MP Jess Phillips condemned the stance yesterday, saying: ‘When Philip Green gets more from the budget than a midwife might I suggest we are on s****y ground.’

Yesterday Mr Corbyn also criticised the cuts, asking Theresa May in the Commons to ‘explain why she chose not to end the benefit freeze for ten million households, but, instead, brought forward a tax cut for higher earners?’

He also blurted out a new, unfunded commitment to end the benefits freeze, which experts say will cost £3.3billion a year.

A senior Labour spokesman then appeared to contradict Mr McDonnell by warning that high earners would, under a Labour government, lose the tax cuts announced this week.

The spokesman confirmed that Labour would not oppose the tax cuts. But he said the money would be ‘clawed back’ from people earning more than £80,000 a year via other tax changes.

He added: ‘We support putting money into the pockets of lower and middle earners so obviously we are not going to oppose that... but in terms of any benefit for the top five per cent of earners, that would be clawed back.’ On Tuesday, Mr McDonnell defended his stance, saying: ‘ We’re not going to take funding away from people, some of these are middle earners. We’re talking about headteachers and people like that who’ve had a rough time, as well as everyone else.’

Official figures show average pay for headteachers is close to £70,000, with more than 1,300 on six-figure salaries.

Asked whether public sector workers such as head teachers would be exempted from Labour’s new policy, the senior spokesman yesterday said: ‘It depends on the particular headteacher.’ Charlie Elphicke, a Conservative member of the Commons Treasury committee, said: ‘What we have seen from the Labour Party this week is complete muddle and confusion over tax.

‘What is more, many senior public sector workers, such as headteachers and senior police officers, who they claim to support, will lose money as a result of this punitive tax grab.’

In the Commons, the Prime Minister taunted Mr Corbyn over Labour divisions, saying: ‘On Monday, the leader of the opposition talked about tax cuts for the rich. Yesterday, his shadow chancellor said what we have always known, which is that the tax cuts were for “middle earners” – head teachers and people like that.’

‘Perhaps he can tell [us] whether he will back the tax cuts and vote for the Budget.’

The partial climbdown also failed to impress some Labour MPs, who do not believe the party should be supporting the increase in the higher rate threshold to £50,000.

Wigan MP Lisa Nandy said it was ‘immoral’ and said she and many of her colleagues would defy the leadership to vote against it. She said: ‘In the end we need to go back to our constituencies… and look people in the eye and explain why we’ve done what we did.’

Lucy Powell, another former Labour frontbencher, said: ‘Yes, basic rate payers will be £130 a year better off, but higher rate tax payers will be £860 a year better off. How can we justify supporting it?’

It is understood that Labour will put down amendments to the Budget resolutions today demanding a rise in income tax to 45 per cent on earnings above £80,000, and 50 per cent for those above £125,000.