`Iron Chancellor' pledges 10p tax

The shadow Chancellor, Gordon Brown, yesterday promised that a new 10p tax rate would be used by Labour to cut the penal rates at present imposed on the lowest paid.

But, 20 years after Denis Healey introduced his sudden austerity package, Mr Brown coupled the tax pledge with an unflinching warning of financial prudence - "iron discipline" - at the opening of the debate on the economy on the first day of Labour's last party conference before the general election. There would be no cooked books or juggled figures, no unsustainable dashes for growth, and no "wish-list" spending solutions, he said.

Labour would be tough on inflation because the poor, "the people we are in politics to defend", suffered most when it got out of control.

"The reason the Labour Party shows iron discipline in our approach to public spending," Mr Brown said, "is that every pound that is inefficiently spent is a pound denied to our frontline services, to health and education and pensions."

But it was the firming-up of his commitment to a low initial tax rate that provided the meat of the speech. "Just as a society which values work and opportunity should not impose penal tax rates for its highest earners," he told the conference in Blackpool, "it is equally important that there should not be penal tax rates for the lower earners - hundreds of thousands of people on the brink of poverty."

One of Mr Brown's aides said later that the Government's own tax and benefit tables showed that the poverty trap was so vicious that some people could actually be worse off even if their income doubled.

A married worker with two young children and gross pay of pounds 120 a week has a disposable income of pounds 145.86 after family credit, housing benefit and council tax benefit and housing costs have been paid. But because of the way in which benefits taper out as income rises, the same worker gets only pounds 145.19 from weekly pay of pounds 240.

Mr Brown said the system was "designed to keep the unemployed poor and the poor unemployed". While the Conservatives' main tax-cutting ambition was to abolish capital gains tax and inheritance tax, to help the few, his tax- cutting ambition was to lower the starting rate of tax from 20p to 15p or even 10p, to help everyone.

Mr Brown made clear that if he handed out a 10p tax cut for the lowest- paid, it would not immediately be snatched back through reduced benefit.

The aide also said that if Kenneth Clarke, the Chancellor, used the November Budget to abolish capital gains tax and inheritance tax, Labour would reimpose the two taxes and use the pounds 4.5bn raised to finance an immediate reduction in the starting rate of income tax.

A Conservative source said last night that while Mr Brown liked to talk tough, the only way to cut taxes was to cut spending, and there was nothing in the speech about spending cuts.

He said that Treasury figures showed that it would cost pounds 8.7bn to reduce the 20p starting rate of tax, applied to the first pounds 3,900 of taxable income, to 10p - and pounds 4.35bn to cut it to only 15p in the pound. "He is the incredible Chancellor whose numbers do not add up," he added.

Tony Blair, the Labour leader, will use his speech this afternoon to try to turn the tables on John Major's suggestion that there is a moral case for tax cuts and smaller government. He will say that a decent society is built on duty to the community and to each other; a moral code that would run through a Labour government. He will make a link between the creation of that decent society and economic renewal.

In his speech, Mr Brown said that his iron approach to the economy did not mean the abandonment of socialism, but was, rather, the very essence of it. "When I talk of tough choices and when I speak Aneurin Bevan's language of priorities it is not to abandon ideals," he said. "It is to make the achievement of our ideals possible."

But while Mr Brown's emphasis on social justice won him a standing ovation, unions fired warning shots across the bows of New Labour.

John Edmonds, general secretary of the GMB, said Britain could not build economic success on "macho management" left over from the Thatcher years. "I know that the Labour Party does not want to upset the CBI," he said. "But a party which is pledged to govern in the interests of all the people should be at least as critical of bad management as it often is of trade unions."