Brown fog clears ... to reveal a tax-cutter

ONE of Labour's most jealously-guarded secrets has just suffered an embarrassing lapse in security. Returning from a market research meeting, aides to Gordon Brown, the Shadow Chancellor, held an animated discussion on Labour's new tax plans in the back of a London taxi. "By the way," said the cab driver when they got out at Westminster, "I was interested in what you were discussing."

Sitting in his spartan Westminster office last week, Mr Brown was finally willing to make his tax plans public. For months he has been under pressure to spell out details of his tax proposals but has resisted - until the eve of a Budget almost certain to bring Tory tax cuts.

The Shadow Chancellor is frank about his party's past failings. "It is undeniably the case," Mr Brown said, "that the public, for a long time, were persuaded by the Conservatives that Labour was a party of taxation for taxation's sake.

"It is undeniable that the feeling that Labour might hold people back, and was therefore a threat to their aspirations, was a caricature that the Conservatives put over with some effect."

Such a conclusion was drawn within days of the 1992 generalelection. When Mr Brown met Tony Blair in the future Labour leader's Sedgefield constituency to conduct an inquest into the party's electoral disaster, the issue of tax loomed large.

Well before Mr Blair became leader, Mr Brown was preparing the ground. He said last week: "In 1992 when I became Shadow Chancellor, the first thing we did was to drop the Shadow Budget and to say that Labour's tax plans had to be begun afresh. Taxation is not some sort of penalty on people who are successful," said Mr Brown, adding that it is clear that "Labour is against poverty and not against wealth. Nor would we tax to punish people and there would be no penal rates of taxation under Labour."

With taxes raised 21 times under the Conservatives - a rise which is the equivalent of a seven pence in the pound income tax increase - Labour believes that the public already feels over-taxed. Hence the Opposition's new move, to provoke a debate about where tax cuts should be aimed, rather than whether they should take place.

Mr Brown said: "I take the view that whereas the Conservative Party and John Major have set out the objective of abolishing Capital Gains Tax and Inheritance Tax, the real objective which will benefit the people of this country, in contrast, will be a lower starting rate of income tax. When affordable, our objective would be a starting rate of 15p or preferably 10p."

At present the 20p band covers the first pounds 3,200 of taxable income, and 5.3 million people pay it. The attractions of creating a new lower tax band for Labour are clear. It would focus effort on lower and middle-income earners yet all tax-payers would benefit. It would help to alleviate the poverty trap which captures many of those who move from welfare to work.

It is not, however, the first of Mr Brown's tax pledges since he has called for the reduction, when possible, of VAT on fuel to five per cent.

Which is the priority? Mr Brown is unwilling to choose - in public at least. Adopting hisfamiliar caution, he said: "One of the principles of taxation is fairness and we have already said that, if resources were available in the Budget, our first priority would be to cut VAT on fuel. While I am not committing myself to any items in our election manifesto it is clearly a huge divide between the Conservatives and Labour that we have always opposed VAT on fuel. But I will also set out my view that a tax system in the modern world must encourage work, foster opportunity and reward effort."

In the creation of the new band many permutations are possible. Mr Brown could tax the first pounds 1,000 of taxable income at 10 or 15 per cent, while keeping a 20p band for the next chunk of earnings. However, the reduction of VAT on fuel, costed at about pounds 450m, is a much more achievable goal than the lowering of the 20p band to 10p at a cost of around pounds 6bn.

Nor is the Shadow Chancellor specific about his reactions to the Budget, and whether he, as Chancellor, would reverse Tory cuts to the basic rate in order to create his new lower band. The Shadow Chancellor said he will "judge the Conservative agenda by whether any tax cuts are sustainable, whether people are better-off".

Labour will oppose cuts in Capital Gains or inheritance tax, but the Shadow Chancellor's formulation leaves ample room for the Opposition to abstain over cuts to the basic rate. Even if they are not Labour's ideal, they would fulfil the criterion of helping lower and middle-income Britain.

Apart from reiterating that there will be no penal rates of tax, Mr Brown declines to reveal his own plans for the upper end of the tax scale.

There is also a reluctance to make a moral case for taxation. Asked whether he risks losing a Dutch auction with the Tories over low tax, the Shadow Chancellor replied: "This is not an auction, it is about trust and understanding. And the contract [with the voters] in mind is one of trust with the British people, based on principle."

In personal terms Mr Brown's position is stronger than in 1992 when he faced criticism over his handling of the ERM crisis, and his economic credibility was questioned by enemies in the party. "I had a clear view in 1992," he said, "of what we had to do and a determination to achieve it. "

Bolstered by highly effective campaigning against the imposition of VAT on fuel and against corporate greed, Mr Brown and his team have helped to undermine public trust in Tory economic management.

Within the party machinery the Shadow Chancellor chairs the strategy and campaigning meetings, and remains close to Blair after his decision not to challenge for the leadership.

Despite his bid to outgun the Tories on tax, Mr Brown wants to be seen as a radical. It is a reflection of his priorities that he recently pulled out of a lunch with Princess Margaret because of developments at the Rosyth shipyard.

He has some surprises in store for the Treasury. Not only might he scrap the combined Budget and Autumn Statement which the Tories created; He also wants more openness with a "green" consultation paper outlining government plans.

Nor does he identify closely with former Labour Chancellors.Commenting on Philip Snowden's ascendancy to the job in 1924, Mr Brown said: "It was said that he entered the Treasury like a high priest entering the sanctuary. I am entering the Treasury as a moderniser determined not just to help with the modernisation of the Labour Party but with the modernisation of the British economy to equip us for the modern world."