'Old Labour' is back, say business leaders

Poll shows that raising the top rate of income tax has raised fears of socialism

Business leaders believe that Gordon Brown's decision to raise the top rate of income tax marks a return to "Old Labour", according to a poll for The Independent.

Some Blairite MPs are privately worried about the surprise move to bring in a 45p-in-the-pound tax rate on incomes of more than £150,000 from 2011. They fear it could alienate voters by suggesting Labour is reverting to type, after consistently opposing an increase in the 40p top rate under Tony Blair.

The Government will be forced to defend its mini-Budget in an emergency three-hour Commons debate today. In an unusual move, the Speaker, Michael Martin, granted a request for a debate by the shadow Chancellor, George Osborne, who accused Labour of "running away from the arguments because they are losing the argument". He said the pre-Budget report was so significant that it amounted to a full Budget, which is normally debated over five days and voted on.

The ComRes poll, taken after Monday's pre-Budget report, found 68 per cent of business leaders believe the decision signals a return to Old Labour. Only 35 per cent think it fair; and only 26 per cent that it is necessary to help the Government balance its books.

Some 72 per cent of businessmen believe the new top rate will prove self-defeating because high earners will find a way to avoid paying it.

The findings will worry ministers, who insist New Labour is alive and merely adapting its "fairness agenda" to take account of the crisis. Lord Mandelson, the Business Secretary and a founder of New Labour, was challenged at a London Chamber of Commerce breakfast meeting over whether the report showed Old Labour was back. "Emphatically not," he replied.

The Chancellor, Alistair Darling, denied he had buried the New Labour project by opting for a new top rate. "I looked at all the things you can possibly do in the tax system and decided it was better to put into place a system that is fairer to people. People who have done well over the years are going to pay a bit more," he said.

Peter Hain, the former cabinet minister who favours higher taxes for the rich, said: "This is about dealing with a serious economic situation that the world over is doing."

The ComRes survey also found business people are sceptical about the temporary reduction in VAT from 17.5 to 15 per cent. Some 72 per cent believe it will make no difference, while only 14 per cent think it will be good for their company and 15 per cent that it will be bad. Business leaders are evenly divided over whether a new £1bn scheme to give loans to small firms will help. But a majority believe the Chancellor's decision to postpone a rise in corporation tax and give companies more time to pay their tax bills will be good for their business.

Mr Darling will come under pressure to help 500,000 families who have still not been compensated for their losses from the abolition of the 10p rate of income tax. Frank Field, the former welfare reform minister, said: "Labour MPs will be less trusting next time. The Government will have to deliver the full compensation in the next Budget or face a hostile vote which this time will most certainly be pressed."

The Tories suffered some embarrassment when David Cameron asked Andrew Lansley, his shadow Health Secretary, to withdraw a remark that "recession can be good for us". Mr Lansley had said: "People tend to smoke less, drink less alcohol, eat less rich food and spend more time at home with their families." He later apologised.