Labour will promise not to increase VAT or NI, McDonnell hints

Jessica Elgot Political reporter
John McDonnell said the manifesto’s day-to-day spending commitments would be fully balanced. Photograph: Danny Lawson/PA

John McDonnell has signalled that Labour’s manifesto will pledge no VAT or national insurance rise, and has said he will argue the party should rule out reviving Ed Miliband’s mansion tax policy.

Speaking to the Guardian, the shadow chancellor said he could not pre-empt the party’s manifesto, which is agreed through its national executive committee and policy forum, but suggested he would make the case to rule out national insurance rises and any hike to VAT.

McDonnell said he had hinted at his preference in the last Treasury questions session of parliament, where he called on chancellor Philip Hammond to “rule out raising VAT and rule out raising income tax”. He said: “If the Tories can’t be straight with the British people, Labour will be.”

The shadow chancellor said the manifesto’s day-to-day spending commitments would be fully balanced, which economists have said is an indicator of potential tax rises.

However, McDonnell hinted that Labour could rule out some areas of revenue. “To give an indication, I called on the chancellor at the last Treasury questions to commit himself to no VAT increase and no increase on national insurance contributions in the way he tried to do it at the budget, and also commit to the triple-lock [on pensions],” he said. “He refused to say that, so that might give you some indication of where I’m going.”

McDonnell said his line of questioning to the chancellor showed he had been trying to extract a commitment from Hammond. “I don’t want to pre-empt anything. But if you want an indication of the direction of travel, look at that question,” he said. “I’ve been trying to pin him down all the way.”

Asked specifically on VAT, the shadow chancellor said the party wanted to address the cost of living and the effects of slower growth and wage stagnation.

“Growth has fallen back, wages have fallen back, inflation is increasing and you have the IFS announcing poorer working families will lose £2,500,” McDonnell said, referencing Friday’s announcement of sluggish GDP growth in the first three months of 2017, which fell to 0.3%, down from 0.7% in the previous quarter. “There are pressures on all levels, middle and low earners in particular,” McDonnell said.

The shadow chancellor said he was personally against a mansion tax and would be making the case to the party to rule out the policy, proposed by Miliband in 2015. The charge put forward by the former Labour leader would have affected homes with a value above £2m, with a tax of at least £250 a month rising with the cost of the property.

“I didn’t support the mansion tax last time round, but it is an NEC decision,” McDonnell said. “The manifesto is being started afresh.” Asked if he would be making the case to the party not to include a mansion tax, McDonnell said: “Yep.”

McDonnell’s opposition to the mansion tax, which would be likely to hit his Hayes and Harlington constituency more than other Labour MPs in seats away from the capital, could put him at odds with some shadow cabinet colleagues. The shadow health secretary, Jon Ashworth, said the policy “should continue”, at a Lords committee in December.

Labour has already committed to keeping the pensions triple-lock, while the Conservatives mull replacing the policy, which guarantees that the basic state pension will rise by a minimum of either 2.5%, the rate of inflation or average earnings growth, whichever is largest.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said that Labour’s promise to balance the books on day-to-day spending commitments, likely to be included in the manifesto, could mean hefty tax rises. He said the easiest way to raise money was to target one of the big three taxes of VAT, income tax and national insurance.

“They are nearly two-thirds of government revenue. There are pros and cons of each of them,” he said. Emmerson also said that a government could look at “badly defined” taxes such as council tax in England, which is based on property prices from 1991.

He suggested it could be shaken up with a revaluation of prices based on 2017 figures, and a reform of the rate at which the tax increases. Although he admitted any changes would be politically difficult, Emmerson said it would be sensible to make sure that “if a property is worth twice as much, then the council tax is twice as high”.

“So someone living in a £2m property would pay four times as much as someone in a £500,000 one,” he said. At the moment the top band of council tax is a flat amount for everyone with a property worth £320,000 in 1991 prices.

Labour have come under consistent pressure from the Conservatives to spell out how the party would pay for spending commitments beyond raising corporation tax and clamping down on tax avoidance and evasion.

Over the past 12 months, the party has pledged spending including reversing cuts to the adult skills budget, investing in the steel industry, ending public sector pay restraint, reintroducing the education maintenance allowance for poor students, maintaining the triple-lock, and reversing changes to universal credit, which Labour politicians have said would be paid for by hiking corporation tax and rooting out tax avoidance.

McDonnell said linking corporation tax to those spending pledges was intended only as a indication of the party’s priorities. “That’s an indication of a direction of travel for us – simple as that,” he said. “It’s an exemplification that we won’t be into tax giveaways, we’re about making sure there’s a fair taxation system, tackling tax evasion and tax avoidance. We will address the level of corporation tax, and others, at that time.”

He repeated his pledge that Labour would publish the full costings of its policy proposals and they would adhere to Labour’s fiscal credibility rule. The rule obliges any future government to balance day-to-day spending with the amount it raises in tax revenue, with borrowing permitted only for capital investment over a five-year parliament.

McDonnell said he remained bullish about Labour’s chances in the election, though current polls show the party trailing the Conservatives. “We are not going to lose this election. Full stop,” he said, though hinted he believed the party’s chances would be significantly affected by giving Jeremy Corbyn the chance to appear on TV debates with Theresa May.

“I think when Jeremy gets up there, just as he did in the leadership campaign, the first debate, he transformed himself from a 200-1 outsider to someone who could win and did win,” McDonnell said. “That’s why she’s refusing to debate: he will come across as the honest, decent, principled person he is – a true leader, who builds consensus.”

The shadow chancellor, who has been a close friend and ally of Corbyn during their time in parliament, had previously said he believed the Labour leader needed a year to turn around the party’s poor showing in national polls.

“That’s why she went to the election – she was listening to me,” McDonnell said. He said the party had “already seen the polls change a bit already” and that the response on the doorstep was not showing the same result.

Other party leaders including the Green party co-leader, Caroline Lucas, have called on Labour to make electoral pacts in certain seats to keep the Conservatives from taking a majority, including Lucas’s seat of Brighton Pavilion, which is a Labour target.

Journalist Paul Mason, a key backer of Corbyn, has called on the party to back Lucas and even offer her a post in the shadow cabinet. But McDonnell appeared to rule out any such pact, as Corbyn has previously.

“I have real respect for Caroline Lucas – she is a good friend and incredibly talented. I’d like to see her recruited into the Labour party and I’m sure she’d rise through the ranks very quickly,” he said.

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