He defended LibDem plans for raising the top rate of income tax on earnings above £100,000 per annum to 50% and switching from Council Tax to Local Income Tax to finance local authority expenditure – which would also hit the better-off.
But he insisted at his launch press conference that he had no problem with the principle that people should be taxed according to what they could afford.
The proceeds of the new top rate of income tax would be used to fund the ending of student fees and top-up fees at universities, and provide long-term care for the elderly, he said. And seven out of 10 families would pay the same or less than existing Council Tax.
Mr Kennedy lashed Tory plans for tax cuts funded by reductions of billions of pounds in Whitehall ‘waste’ as ‘fantastical’, adding: ‘I don’t think people will be taken in by what the Conservatives appear to be offering. People will know that the sound they hear is of the clock striking 13.’
He came under immediate attack from the Tories, who said Mr Kennedy’s new top rate would raise the marginal rate of tax for those earning over £100,000 to 51%, taking Labour’s increase in National Insurance Contributions into account.
A Conservative spokesman said this conflicted with a pronouncement by LibDem Shadow Chancellor Vince Cable that marginal rates of direct tax should never exceed 50% at any point in the income range.
A LibDem spokesman said the new top rate would include national insurance contributions and mean a top tax rate of 49% plus the NICS’ 1%.
Meanwhile, Tory Shadow Chancellor Oliver Letwin published research identifying £35 billion in savings in public expenditure found by their James Review.
Letwin claimed key public services would be protected with spending on the NHS and education rising but a range of services – including the planned new Supreme Court and the Small Business Service would be axed.
Tory leader Michael Howard pledged that his spending plans ‘will enable a Conservative government to deliver value for money, to stop Blair’s next round of stealth taxes, and to lower taxes.’
He added that under the Tories there would be ‘lower taxes’.
The Tory ‘hit list’ of cuts claims that abolishing the Small Business Service and other business support, with a few exceptions, would save £496 million.
Mr Letwin said it was one of a number of ‘hard decisions’ he had had to take and this was ‘a non-priority area’.
Other cuts include eliminating a separate Inland Revenue policy capability (£3m), reducing Customs support capabilities (£75m) and reducing staff at the Treasury (£38m).
He would also plan to save £661m by rationalising Treasury data processing, £44m by rationalising the receivables operation, £16 million by relocation and better property management, and privatising the Defence Bills Agency and a number of other bodies.
But Labour Election Campaign overlord Alan Milburn, back from the bosom of his family, said Tory cuts would result in economic instability and mass unemployment.
In question time this week, Mr Howard called on Mr Blair to repeat Labour’s pledge before the last general election not to increase the basic or top rate of income tax.
The prime minister retorted: ‘You will have to wait for our manifesto’, adding that there would be another budget meanwhile, and taunting Howard with the Tories’ own record of having promised not to put VAT on fuel and then doing so.
Howard said Blair had promised not to put taxes up at all and that he had no plans to increase National Insurance Contributions, but did so.
He claimed: ‘Every independent expert – the International Monetary Fund, the Organisation for Economic Co-operation and Development, the CBI, the British Chambers of Commerce, the National Institute for Economic and Social Research, The Economist, the Institute for Fiscal Studies – says that the Government are spending more than they are raising and that a future Labour Chancellor would have to put up taxes. Why does the Prime Minister think they are all wrong?’
Blair said it was Treasury forecasts that had been proved right – and went on to denounce the Tory plans for spending cuts.
Secretary of State for Transport Alistair Darling said Tory savings included Gershon recommendations, amounted to double-counting and did not add up.
Mr Kennedy said he would halt moves to introduce ID cards, end baby bonds and scrap the last phase of the Eurofighter and make other savings to fund his policy priorities.
Does Darwin's theory apply to taxation? Colin ponders...
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states
Accountancy watchdog the FRC has dropped its investigation into the former chief financial officer of Tesco, nearly two years after the supermarket was engulfed in an accounting scandal
Colin imagines how Apple's logo might change in the wake of the EC's ruling over its Irish tax arrangements