Brown makes firm pledge to cut VAT on fuel

Labour will promise to cut VAT on domestic fuel in its election manifesto, Gordon Brown, the shadow chancellor, declared yesterday as he clashed with Kenneth Clarke in a pre-Budget joust.

"We dislike and hate VAT on fuel. We will try to reduce it. The Chancellor likes VAT on fuel and wants to extend it. We will seek to cut it to the lowest level possible," Mr Brown told MPs in a Commons debate on the Queen's Speech.

After the Chancellor mocked the promise only to "try" and "seek" to cut VAT, Mr Brown intervened to assert that his was a firm pledge to reduce VAT. The shadow Chancellor made it clear earlier on BBC radio that the promise was to cut VAT from 8 to 5 per cent, the lowest rate allowed under European Union rules, at a cost of pounds 450m a year.

Labour won its most significant victory of this Parliament when it blocked an increase in VAT on fuel from 8 per cent to the standard 17.5 per cent rate.

Mr Brown's pledge is Labour's first specific and costed tax proposal, although he did not spell out how the cost would be met. "We're saying it could be done within existing resources," he said.

The party's draft manifesto says: "We will outline any tax proposals we have when we are able to make a judgement of the economic circumstances that we are likely to face in government." Mr Brown refused to be drawn on the details on any other tax plans.

He said reports that Tony Blair, the Labour leader, was against his wish to bring in a new tax rate for people earning more than pounds 100,000 of 50p in the pound were "completely manufactured by one or two Conservative newspapers".

Mr Brown also sought to play down suggestions of a split with Robin Cook, the shadow Foreign Secretary, who signalled the dangers of Britain joining the single European currency at its launch. But he struck a different note when he spelt out the potential advantages of monetary union, "such as reducing the cost of speculation, [and that] long-term interest rates could be lower".

Both Mr Brown and Mr Clarke avoided the subject of the single currency. The clash was dominated by the rise in interest rates, and by Mr Brown's attempt to send a tax-cutting message to pre-empt next month's Budget.

Mr Clarke dismissed Labour's VAT policy as a "random pledge" and vigorously defended his claim that the economy was in better shape than for a "generation". He told MPs: "The only people who could doubt the health, strength and breadth of this recovery are either mad, dead or sitting on the opposition benches."

The silence on Europe was broken by Sir Edward Heath, the former Tory prime minister, who said Euro-sceptics were getting free exposure in the newspapers while the arguments for a single currency were being ignored. He said it was "disgraceful" that the Government was not allowing the European Commission's work "explaining the single currency ... to be given to the people of this country."

He added that it was obvious many social problems stemmed from unemployment and the Government should make tackling unemployment its priority.

t Labour has gained its highest poll rating since the spring following the Tories' confusion over policy. Tony Blair's party is on 56 per cent with the Conservatives trailing on 28 per cent in a MORI poll for the Times.