ALAN Johnson yesterday unveiled Labour’s strategy for reducing the deficit, backing his predecessor’s plan to halve it within four years but arguing for higher taxes on banks to soften the blow of spending cuts.
Speaking to an audience of accountants at KPMG’s headquarters, the shadow chancellor said Alistair Darling was right to plan to halve the deficit by 2014-15, but that he had “looked again at the way in which we deliver that reduction”.
He added: “My view is that specific, targeted tax changes need to do more of the work”.
Proposing a split of around 60 per cent spending cuts to 40 per cent tax hikes, Johnson said Labour would raise £7.5bn more in taxation than Darling had planned, but that it still wanted to achieve an overall fiscal consolidation of £83bn in real terms by 2014-15.
Johnson said he would back the coalition’s £2.5bn banking levy, as well as £1.5bn of further tax increases, such as freezing the income tax threshold for higher rate payers from 2013 and increasing capital gains tax.
But the centrepiece of his speech was a plan to raise a further £3.5bn from the banks, either through a repeat of Darling’s bonus tax or via some kind of levy on remuneration and profits.
That amounts to an extra £7.5bn of tax rises on top of those set out by Labour before the election, meaning the party would now only cut spending by in real terms £44.5bn compared to £52bn. The coalition is planning real terms spending cuts of £83bn.
Aides to Johnson said he was agnostic about how to raise the extra revenue from banks, but that the entire £7.5bn package would be spent on capital projects. He would cut capital spending by 17 per cent, compared to the 33 per cent pencilled in by Darling.
Like Darling, chancellor George Osborne has adopted a ratio of around 70 per cent cuts to 30 per cent tax rises, although he wants to achieve a much larger consolidation of £113bn by 2014-15.
Johnson said his plans implied cuts to departmental expenditure of £34bn or eight per cent, almost half of the coalition’s 14 per cent or £61bn of departmental cuts.
QUOTES FROM ALAN JOHNSON’S FIRST MAJOR SPEECH AS SHADOW CHANCELLOR
On the deficit:
“The government suggests that the deficit was avoidable and the emergency Budget unavoidable. The truth is actually the reverse. The deficit was unavoidable and the Budget was not only avoidable, but wrong.”
“We will support the rise in Capital Gains Tax in the emergency Budget.
There is also a case for freezing the basic rate limit in 2013-14 as proposed. And let me be clear – we are not proposing to halve the deficit with increases in personal taxation beyond those already announced.”
On another banking levy:
“The government, which claims ‘fairness’, has put itself in the absurd position of saying that children should play a bigger role in getting the deficit down than the banks. The banking sector is contributing £2.4bn, while child benefit freezes and cuts will raise substantially more. So families take the strain while bankers grab the bonuses.”
On Labour’s plans for cuts:
“We’re not in the business of doing a shadow spending review. But we will be clear on the scale of cuts we think is necessary. And it is significantly less than the government believes is right.”