Election '97: Tories use tax as the fear factor

Party leaders trade blows over fiscal policy

An exchange of Labour "fibs" and Tory "evasion" marked the start of the final week's election campaigning yesterday as John Major and Tony Blair tried to scare the voters.

The Conservative leader warned that if Labour was elected, their promised July Budget would include a tax package that could raise pounds 12bn. The Labour leader said later that the Conservatives were addicted to value-added tax, and they planned to slap VAT on food.

Mr Major denied any intention of doing that, bluntly calling the Labour allegation "a lie". But he did not answer a direct question about extending VAT to other basic items, like children's clothes, or books.

"We have no need to raise taxation," he said. "We have set out spending plans and taxation plans and there is no need to get involved in ruling out VAT. I do not believe it is going to be necessary."

Mr Major said: "What is now self-evidently the case is that they propose to spend the last week of this campaign frightening the sick, frightening the elderly, frightening the vulnerable by spreading deliberate fibs and scare stories they know have absolutely no basis whatsoever."

As for Labour warnings that the Tories proposed to privatise state pensions, Mr Major said that was "absolutely scurrilous".

Conservative governments had up-rated the state pension each year, and would continue to do so, he said. "There is not a shred of basis in fact for the scares they have been putting about," he added.

But while both leaders have attacked each other for using scare tactics, both yesterday tried to put the frighteners on the electorate.

Referring to Labour's planned windfall tax on privatised utilities, Mr Major said it was a tax which "they cynically claim wouldn't hurt anybody."

He said that was not true; people would be hurt by it. "It would put up the cost of making a telephone call or heating a room with gas or electric stove. It would hit pensioners and cut the value of shares held by millions of savers."

That was just "for starters". Kenneth Clarke, the Chancellor of the Exchequer, then issued a "menu" of tax increases that Gordon Brown, the shadow Chancellor, could choose to use, to fill the alleged pounds 12bn "black hole" between his spending and revenue plans.

He said that Labour would need to increase taxes by pounds 640 a year for every household in the country to balance the books.

However, when Mr Major was asked for his plans on the tax burden, he did not answer the question, and the answers to repeated questions on VAT did not provide any assurance that the VAT base would not be extended, or that VAT rates would rise.

The shadow Chancellor said Mr Major had spent the election evading the answer. "From now until election day, the Prime Minister must be hounded until he matches Labour's commitment not to extend VAT to food, children's clothing, public transport fares, and books and newspapers.

"If he fails to do so, the British people will know what to expect from a fifth term Tory Government - more on VAT essentials."

Mr Blair told The Independent at his election press conference: "If we can get the tax burden down for ordinary families of course we want to do that. But we are wary of making guarantees to people precisely because we do not want to repeat the mistakes Mr Major made in the last election."

He added that he was also wary because "we are going to inherit a situation where the public finances are in a very, very poor state ...

"But of course a 10 pence starting rate of [income] tax would help [ordinary families] and I think if we possibly can help them we should." He said that if there was scope for tax cuts under a Labour Government, that is where it would be done.

Windfalls ripe for the picking

Kenneth Clarke set out a menu of options for Labour tax increases yesterday, but some of them would do just as well for a Tory Chancellor as a Labour one. Here is a list of choices facing a government of any complexion wanting to raise extra revenue.

Restrict personal allowances to basic rate pounds 1.9bn

Restrict pension tax relief to basic rate pounds 1.3bn

Abolish married couple's allowance pounds 2.8bn

Abolish mortgage interest relief pounds 2.4bn

Abolish exemption of child benefit from tax pounds 700m

Abolish exemption of incapacity benefit from tax pounds 550m

Extend VAT to private education and health pounds 1.5bn

Increase corporation tax rate by 1 per cent pounds 650m

Cut rate of advance corporation tax credit by 1 per cent pounds 250m

End tax exemption of first pounds 30,000 redundancy pay pounds 1.3bn

Extend VAT to rent on domestic dwellings pounds 3bn

Extend VAT to rent on commercial properties pounds 1.3bn

Extend VAT to betting, gaming and Lottery pounds 700m

Extend VAT to domestic passenger fares pounds 1.45bn

Extend VAT to international passenger fares pounds 1.2bn

Extend VAT to children's clothing pounds 800m

Extend VAT to water and sewerage services pounds 900m