Mawhinney condemns Labour tax 'deception'

PETER VICTOR

and JOHN RENTOUL

The Conservative Party chairman, Brian Mawhinney, last night attacked Gordon Brown's suggestion of future tax cuts under a Labour government as cynical deception.

The accusation was the latest in a pre-Budget outbreak of inter-party warfare in which Mr Brown, the shadow Chancellor, warned that even an income tax cut of 4p would not be enough to wipe out the 7p in the pound increase in tax introduced by the Tories.

In a letter to Tory MPs and 125 business supporters, Dr Mawhinney claimed there had been a collapse in the credibility of Labour's claims to be able to manage the economy.

"It is now clear that Labour's commitment to increased spending remains as real as ever and that Gordon Brown's suggestion of tax cuts is nothing more than a cynical attempt to deceive the electorate," he wrote.

Dr Mawhinney posed a series of economic questions for Labour over how it would pay for its spending plans; at what rates it would set its taxes; and its targets for inflation and interest rates. "Until it demonstrates a grasp of the economic challenges which face this country, Labour will remain unfit to govern," he said.

Mr Brown is playing his cards close to his chest, continuing his attempts to pre-empt expected cuts in the standard rate of income tax, while hedging his prediction of how much Kenneth Clarke, the Chancellor, might reduce the level.

"Not even a 3p, 4p or 5p cut in income tax can undo a 7p rise over three years," Mr Brown said, referring to the tax rises imposed by the Conservatives since the election - equivalent to a 7p in the pound rise in the 25p standard rate.

A cut in the 25p basic rate of income tax to revive the slowing economy is expected to form the centrepiece of Mr Clarke's third Budget today. The cut - which Lord Lawson, the former Chancellor, yesterday suggested should be 2p, but which most politicians think is more likely to be 1p - will be presented as a down-payment on the party's long-standing ambition of a 20p standard rate.

It is seen by ministers as a vital first step towards restoring the Conservatives' low-tax image, torn to shreds by a succession of rises since the 1992 election. They hope it will be a springboard to a fifth term of office at the next election.

Mr Clarke is expected to use today's Budget to introduce further legislation aimed at blocking corporation tax loopholes. The move would follow the Independent's disclosure that Rupert Murdoch's News International has paid virtually no tax in the past 10 years, despite achieving profits of nearly pounds 1bn.

Tax experts are already braced for an extension of Inland Revenue powers to investigate companies' policies on transfer pricing, the arrangements under which multinationals account for sales between different subsidiaries. But other moves are likely as the Treasury continues a practice of adding to already complicated financial legislation measures designed to curb the tax-planning activities of accountants.