Election 1997: Tax dominates to the very end

The political parties were still grappling with questions of tax just days before the polls open. Calls from business for an increase in income tax added fuel to the debate.

The British Chambers of Commerce deputy director Dr Ian Peters said a strong pound caused by higher interest rates was hitting exports. He added that the BCC had been opposed to the reduction of income tax to 23p in the pound made in the November Budget and called for the 1p cut to be restored.

But Labour leader Tony Blair refused to be pushed into a U-turn just days before the vote.

Chancellor of the Exchequer Kenneth Clarke also signalled his party’s determination to reduce the basic rate of income tax further. He added that he had set interest rates to keep inflation down.

Only the Liberal Democrats seemed inclined to consider tax rises. They reiterated their policy of a penny increase in income tax to pay for education improvements, coupled with longer-term proposals for a 50% higher rate of tax on incomes over #100,000.

Clarke spelled out details of the emergency Budget he claimed Labour would introduce within weeks to help fill a #12bn ‘black hole’ in spending plans and fund the promised reduction of VAT on domestic fuel to 5%.

According to Clarke, besides a #3bn windfall tax, Labour’s measures would seek to raise:

#1.9bn from restricting personal allowances to the basic rate;

#1.3bn from restricting pension relief to the basic rate

#1.5bn from extending VAT to private education and health;

#650m from increasing corporation tax by 1%;

up to #5.2bn from abolishing MIRAS and the married couple’s tax allowance.

Clarke said that shadow chancellor Gordon Brown would blame unexpected economic circumstances for ‘shock tax rises’.

Prime Minister John Major said Labour’s Budget would be a ‘one-way ticket to economic gloom’. Major also brushed off claims that a future Tory administration would increase VAT on food and children’s clothing. ‘We have set out our spending and taxation plans and these do not include any proposals to increase or widen VAT,’ he said.