Labour’s tax bombshell

Let’s go back to the Budget and remind ourselves of the key line from Darling’s statement:

I have no further announcements on VAT, on income tax, or national insurance rates.

Today, after much speculation, Team Cameron will announce that they will reverse part of Labour’s national insurance rise due to come into effect next year:

It is understood that the Tories would reduce the planned rise by about half, although only low and middle-income earners would benefit.

The Shadow Chancellor will indicate that the cost of easing the burden of the NI increase will be met by cuts in public spending rather than a new tax rise, such as lifting VAT. It is not clear, however, where the axe would fall.

This is clever wheeze to set the agenda ahead of tonight’s debate with Cable and Darling.  But it could come apart very quickly unless Osborne sets out exactly how the NI reduction will be paid for.

Now back to Darling’s statement.  On the surface, it could be concluded that Labour will saying nothing further about VAT, tax and NI before the election.  However, it’s possible they have a cunning plan.

What was not mentioned, or even raised in any of the post Budget analysis, is what Labour will do about the 50p tax rate that kicks in next week.  As discussed, the tax is not expected to raise much revenue and the Treasury may have put pressure on Darling to drop it.

Play this out.  We get the Osborne's announcement with the predictable Labour response.  The debate follows where we will learn very little.  Then, during the campaign, Labour drops its tax bombshell by abolishing the 50p rate, which will not involve cuts elsewhere.

If this happens it would cost the Tories support in marginal held seats, as it will bring an immediate tax benefit.  Not only that, but it destroys the Tory argument that they are a tax cutting party.

The Tories should pay more attention to Darling’s statement.  It rules nothing out for what Labour may announce during the campaign.

Mandelson & Co are going to play the Tories at the own game and trump them on tax cuts.