Deficit: Johnson would increase taxes to boost economic recovery

SHADOW Chancellor Alan Johnson said yesterday he would increase taxes in a bid to help the economy recover from the recession.

In his first speech in the job, he insisted tax rises had to play a bigger part than Labour has so far proposed in reducing the country's budget deficit.

Under his plans, they would include an additional 3.5bn raised from the banks – on top of the Government's forthcoming 2.4bn banks levy.

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While insisting Labour would not increase personal taxation any further than planned, he said he accepted the coalition's freezing of the basic rate limit for income tax from 2013.

He indicated that he would not attempt to reverse the recent rise in capital gains tax either.

Taken together, the measures would raise 7.5bn more than his predecessor Alistair Darling had planned.

The money could be used to offset cuts in infrastructure investment and support growth, Mr Johnson said.

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He insisted he would stick to Mr Darling's plan to halve the deficit over four years, but said he wanted taxes to account for a greater ratio of the savings.

"Our policy remains to halve the deficit by 2013/14," he said.

"But I have looked again at the way in which we deliver that reduction, at the balance of tax and spending.

"My view is that specific, targeted tax changes need to do more of the work."

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Mr Darling's plans envisaged about 70 per cent of the savings coming from spending cuts and 30 per cent from tax changes. Mr Johnson wants the ratio to be 60:40.

That is still short of the 50:50 split that Mr Miliband mooted during the Labour leadership campaign, but Mr Johnson later dismissed that approach, saying: "I think 60:40 is about the right balance."

Calling for extra taxes on the banks, the Shadow Chancellor said that the Government's plans for a bank levy were "inadequate" compared with the pain being inflicted on families.

"The banking sector is contributing 2.4bn, while child benefit freezes and cuts will raise substantially more," he said in a speech at KPMG in the City.

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"So families take the strain while bankers grab the bonuses. There is no justification for such an unfair sharing of the burden."

Ahead of Chancellor George Osborne's comprehensive spending review tomorrow, Mr Johnson said he would work with the Government on "targeted tax rises that do not affect low and middle income families".

But he stressed: "We are not proposing to halve the deficit with increases in personal taxation beyond those already announced."

Mr Johnson also indicated he would not necessarily oppose all of the coalition's welfare reforms, including plans for medical assessments for disability living allowance claimants.

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But the Tories claimed that Mr Johnson's plans would take the

country "back to the brink of bankruptcy" and still left 44bn of spending unaccounted for.

Michael Fallon, deputy chairman of the Conservative Party, said: "Labour's black hole just got bigger, not smaller.

"Ed Miliband promised a plan to close the deficit. All we got today was yet more spending proposals and a tax on banks that would need international agreement and wouldn't tackle the deficit."

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His speech came as business leaders' support for the Government's deficit-reduction strategy was dismissed as a political stunt.

Chancellor George Osborne was boosted by a letter signed by 35 corporate bosses backing his bid to eliminate the 109bn structural deficit in four years.

The letter, which had the bosses of Marks & Spencer, BT and Asda among its signatories, said there is "no reason to believe" the strategy would undermine the UK's economic recovery.

The private sector "should be more than capable of generating additional jobs to replace those lost in the public sector" and put workers in more economically productive roles, it argued.

Next chief executive and Tory peer Lord Wolfson, another of those who signed the letter, said it was "absolutely not" a party political move and most signatories were not involved in politics.