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30 September 2010

Ed Miliband’s tax dilemma

He's promised to tax more than Brown and Darling. But which should he raise?

By George Eaton

The Tories have given us a preview of one of the strategies we can expect them to use against Ed Miliband, in a new Matt Hancock-penned dossier entitled: “which taxes would you put up, Mr Miliband?”.

Miliband has pledged to support a 50:50 split between tax rises and spending cuts, the same balance adopted by Norman Lamont and Ken Clarke during the last period of significant fiscal tightening in the 1990s. This marks a break with the Brown-Darling plan which adopted a 67:33 split between taxation and spending.

In a interview with Channel 4 News last night, Milband confirmed that he would “do more from taxation” than Darling and cited his plans for a higher banking lavy and a crackdown on tax avoidance. The last Labour government planned £73bn of spending cuts and tax rises (George Osborne has announced an additional £40bn) which means that, assuming he retains the £21bn tax rises announced by Darling, Miliband needs to raise an additional £15.5bn from taxation.

As well as a beefed-up banking levy, which would raise an extra £5bn, he should consider reviving the original Lib Dem plan to tax capital gains at the same rate as income (the Tories limited the rise to 28 per cent). This would raise £3.2bn and have the advantage of dividing the coalition, while also wooing disillusioned Lib Dem supporters. Cutting the annual CGT exemption to £2,000 from its present level of £10,100, would raise a further £900m.

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The Miliband team should also look at poaching the Lib Dem plan for a “mansion tax”, a policy supported by David, but not Ed, during the leadership campaign. A 1 per cent a year levy on homes worth more than £2m would raise at least £1.7bn. These measures, combined with a tax avoidance crackdown of the sort planned by the coalition, would comfortably raise enough for Miliband to fulfil his 50:50 pledge.

By the end of the conference season and the all-important spending review, he will need to have some answers.