Labour 'to cut taxes in first Budget'

If Labour wins the general election the party will cut VAT on fuel and signal its intention to move towards a 10p-in-the-pound level of income tax in a first Budget in June.

These measures, in addition to a windfall tax on the privatised utilities, will form a key part of the "war on poverty" declared yesterday by shadow chancellor Gordon Brown.

Cutting VAT on gas and electricity from 8.5 per cent to 5 per cent will cost an estimated pounds 400m a year. It will be funded by ending tax relief on private healthcare insurance for the over-sixties and similar measures.

Shadow Treasury aides said Mr Brown will also announce "his intention of moving in the direction" of a 10p rate of income tax, with the aim of encouraging more people to come off benefits and go back to work.

With his proposed first Budget taking shape in talks with economic advisers, Mr Brown yesterday warned Labour Party activists not to expect "huge sums of extra money" to spend. "If I told you, 'Vote Labour on Thursday and the money will flow on Friday,' none of you would believe me - and you would be right," he told the Scottish Labour Party conference in Edinburgh.

"We will not make the mistake of the 1964 Labour government, when two years were wasted ... Nor will we make the mistake of 1974, spending for the first two years and then having to cut back in the next three.

"I cannot and will not print money or take easy options that would end up hurting pensioners and the very people who depend on sustainable public services."

Looking forward to a possible two-term Blair government, Mr Brown insisted: "We set out with a strategy not for one year or two years but for five years - and then 10. And in everything we do from day one we make fairness the test."

Spending pounds 60m on a royal yacht failed that test. Higher salaries for ministers and MPs also failed - "They will be frozen" - as did tax breaks for medical insurance. "The money will go instead to where it should go - for pensioners, cutting VAT on fuel."

The shadow chancellor promised "a new economy that values managers and employees alike in the workplace - and that must include signing the Social Chapter and the introduction of a national minimum wage".

*Shadow foreign secretary Robin Cook was at the centre of a row over Europe last night after suggesting the "poisonous" views of Defence Secretary Michael Portillo and ex-Cabinet minister John Redwood could spark racism.

The Tories were furious at Mr Cook's attack on them in a speech to the conference in which he declared: "Chauvinism and xenophobia are the parents of bigotry and racism."