Labour would raise tax if needed

18/03/2010 20:15:51

Business Secretary Peter Mandelson pledged on Thursday that a Labour Party government would raise taxes from next year if necessary to help cut the deficit.

The Conservatives are seeking to end 13 years of Labour government by winning a national election expected on May 6, and the issue of how and when to cut the deficit -- due to top 12 percent of GDP this year -- is at the heart of the campaign.

The European Commission has criticised the government's stance, saying that its medium-term plans for cutting the deficit should be more ambitious, while credit rating agencies have warned Britain could lose its triple-A rating unless it tackles the deficit aggressively.

Defending Labour's record, Mandelson said the government would strike the right balance between support for the economy as it recovers from recession and fiscal retrenchment at the appropriate time.

"What we are not prepared to do is to take a sort of axe to public spending at this stage when the recovery is so fragile," Mandelson said during a debate on the economy.

Referring to a public spending review that is due to begin in March 2011, Mandelson said that would be the time for the government to refine its strategy.

"We will prepare for that in a way that will enable us to judge much more carefully ... what the economic circumstances require, both in raising taxation, should that be necessary, in addition to what we have already announced, or cutting public expenditure in ways that will be dictated by the size of the deficit at that time," he said.

The Labour government had already announced that national insurance, a social security contribution paid by employers and workers, would increase by 1 percentage point from 2011, a measure that has been opposed by business groups.

The government will lay out its fiscal strategy in more detail when it presents its 2010-2011 budget next Wednesday.

The Conservatives have promised an emergency budget within 50 days of winning office to replace the Labour one.

Mandelson's opposite number in the Conservative Party, Ken Clarke, attacked Labour as spendthrift, saying the correct method was to cut "wasteful public spending" and not to raise taxes -- although he did not rule that out completely either.

"The burden of taxation is one where we've lost our competitive edge," Clarke said during the debate with Mandelson in front of an audience of business leaders.