Balls urges priority for reduction in 20pc rate of VAT

A Downing Street aide told a newspaper the need to boost the economy meant there was “a serious case for accelerating” the introduction of the policy, which the newspaper said would be worth up to £400 a year for low and middle-income earners.

But Mr Balls said: “If you really want to get spending and purchasing power into the economy quickly, rather than doing it through personal allowances, which tends to be a bit diffuse, better to have a temporary cut in VAT because a cut in VAT puts money into people’s pockets straight away. It will have more of an impact upon the economy.

“But to be honest, if he was to do personal allowances rather than VAT it would be such a change of direction.”

Yesterday a group of leading economists called on Chancellor George Osborne to scrap the 50p tax rate it at the earliest opportunity.

In a letter to the Financial Times, 20 high-profile business experts told the Chancellor the UK needed to return to an “internationally competitive tax regime” to stimulate the stuttering economy.

But Government figures poured cold water on prospects of swift action on the 50p rate, with Communities Secretary Eric Pickles – a leading Cabinet advocate of abolition – acknowledging that it can be dropped only “when the time is right”.

Mr Pickles said: “There is a strong case to say this isn’t actually contributing very much and on balance is probably doing more damage than good.

“When the Chancellor judges the time is right to do so, then we should get rid of it.”

But in an interview on BBC Breakfast today Mr Balls said: “Do you really think the right priority now is to only cut taxes for people whose incomes are over £150,000 a year? That is a tiny minority of people.