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Darling facing Budget criticism Tax rise 'not end of New Labour'
(about 2 hours later)
Chancellor Alistair Darling has defended his Budget after opposition parties criticised his forecast for economic growth as a "fantasy". The income tax increase for the highest earners does not mark the end of New Labour, Gordon Brown has insisted.
He predicts the economy will return to growth by the end of 2009, expanding by 1.25% next year and 3.5% in 2011. A 50p rate for earnings over £150,000, being brought in from next April, was a key part of Wednesday's Budget.
Mr Darling's forecasts have been called "preposterous" and "ludicrously optimistic" by opposition politicians. The Tories said the entire Budget was a "fantasy", while the tax rise broke with a core New Labour pledge.
But the chancellor told the BBC he remained "confident" about "the fundamentals of the economy". But Mr Brown said New Labour was not dead: "We are about helping people make the most of their potential - New Labour, that's what we're all about."
He also said his prediction for next year was "within the range" of expert forecasts. And Business Secretary Lord Mandelson told the BBC the Budget had reflected New Labour priorities of seeking to have a "dynamic economy" and to have "fairness" on taxes.
IMF figures He also urged people "to judge us in year's time", saying he thought people would look back at the Budget and decide that the decisions taken had been "tough... responsible and fair".
In Wednesday's Budget, Mr Darling said the UK would have to borrow a record £175bn this year as he announced measures for reversing the sharpest contraction of the economy since World War II. The increase, announced by Chancellor Alistair Darling in his Budget statement on Wednesday, breakd Labour's 2005 manifesto pledge not to raise the top rate of income tax during this Parliament.
Today doesn't look good in terms of headlines and I've been resigned to that for some time Alistair Darling 'Gained the most'
The borrowing figure is far higher than he had previously estimated. Mr Darling said it was necessary to help pay for declining revenues during the recession, with the government expected to borrow £175bn this year.
In his statement, the chancellor predicted the economy would shrink by 3.5% in 2009 - higher than he had forecast in the pre-Budget report - but suggested it would return to growth by the end of the year. Speaking at a Prince's Trust event in east London, Mr Brown said: "The point that I think we have got to accept is, if we are going to give people opportunities they need for the future, then there has got to be a contribution by those who have the most and who have gained the most over the last few years.
Within an hour and a half the International Monetary Fund had put forward the more pessimistic prediction that the economy would shrink by 4.1% this year and by 0.4% next year.
Mr Darling said experts had made a "wide range of forecasts" that his was within this.
Asked whether government spending had been unsustainable, he said: "In the last 10 years we've made a big difference to the quality of our health service and education.
KEY POINTS 50% tax rate for earnings over £150,000Big debt and deficit increasesEconomy shrinks at record ratePublic spending squeeze plannedBooks not balanced until 20182p on fuel, 1p on a pint of beer and 7p on cigarettes£15bn public sector 'efficiency savings'Claw back tax relief on top earners' pension £2bn help for young unemployed£1bn to boost housing market£2,000 car scrappage scheme At-a-glance: Budget 2009 Analysis: Election countdown Tax rise as UK debt hits record Send us your commentsKEY POINTS 50% tax rate for earnings over £150,000Big debt and deficit increasesEconomy shrinks at record ratePublic spending squeeze plannedBooks not balanced until 20182p on fuel, 1p on a pint of beer and 7p on cigarettes£15bn public sector 'efficiency savings'Claw back tax relief on top earners' pension £2bn help for young unemployed£1bn to boost housing market£2,000 car scrappage scheme At-a-glance: Budget 2009 Analysis: Election countdown Tax rise as UK debt hits record Send us your comments
"We have increased police numbers and improved the transport infrastructure. We have done a lot." "This is not taxation for its own sake; it is tax for a purpose. This is Britain fighting back against the international recession. This is Britain taking bold action for recovery."
He added: "With the world economy set to double in the next 20 years, we can be up there in the front. Mr Brown said he remained committed to the values which defined the New Labour project in the 1990s, which he had a key part in designing.
"The fundamentals of the economy, the strength of our economy - despite what is happening just now, I remain confident we can seize those opportunities and that is the vision I've got for the future. This was aimed at extending the party's support base by proving it was economically competent and not in favour of increasing taxes on higher earners.
"Today doesn't look good in terms of headlines and I've been resigned to that for some time, but I believe we have reason for confidence and we should not get ourselves into a reason of believing otherwise." The new higher income tax rate - an increase on the 45% proposed in last year's pre-Budget report - was brought forward a year by Mr Darling to begin in April 2010.
The Conservatives are expected to face pressure from grassroots members to promise to scrap Mr Darling's new top rate of income tax of 50% on earnings over £150,000. The Conservatives are expected to face pressure from grassroots members to promise to scrap the measure if they come to power.
In one of the biggest surprises of the Budget, the new rate - an increase on the 45% proposed in last November's pre-Budget report - was brought forward a year to begin in April 2010. But shadow chancellor George Osborne told the BBC: "I can't promise to reverse it. I'm sorry, but I can't give that promise."
If that happens before the next general election, Labour will have broken a manifesto pledge not to increase the top rate of tax during this Parliament, but Mr Darling said it would "pay for additional support for people now". 'Not being honest'
'Honesty needed' He said Labour had "completely messed up the finances of the country", adding: "Yesterday all that you got was a fantasy Budget - a claim that you could deal with the country's massive debt problems by simply taxing people over £150,000.
Shadow chancellor George Osborne said Labour had "completely messed up the finances of the country".
He said: "Yesterday all that you got was a fantasy Budget - a claim that you could deal with the country's massive debt problems by simply taxing people over £150,000.
"I don't think the chancellor is being honest with the British people about that and what they want from the Conservative Party, hopefully the next government, is some honesty, some straight talking about the problems this country faces and the answers.""I don't think the chancellor is being honest with the British people about that and what they want from the Conservative Party, hopefully the next government, is some honesty, some straight talking about the problems this country faces and the answers."
Asked whether the Tories would abolish the 50% top rate of income tax, Mr Osborne said: "I can't promise to reverse it. I'm sorry, but I can't give that promise."
FROM THE TODAY PROGRAMME More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
Mr Osborne said taxes on high earners were not his "priority", but added: "I don't agree that long-term higher marginal tax rates are good for the economy. Tony Blair used to say that."Mr Osborne said taxes on high earners were not his "priority", but added: "I don't agree that long-term higher marginal tax rates are good for the economy. Tony Blair used to say that."
In the Budget, Mr Darling predicted the economy would return to growth by the end of 2009, expanding by 1.25% next year and 3.5% in 2011.
He said the UK would have to borrow a record £175bn this year as he announced measures for reversing the sharpest contraction of the economy since World War II. The figure is far higher than previous predictions.
The International Monetary Fund put forward the more pessimistic prediction that the economy would shrink by 4.1% this year and by 0.4% next year.
Mr Darling said experts had made a "wide range of forecasts" and that his was within this.
Asked whether government spending had been unsustainable, he said: "The fundamentals of the economy, the strength of our economy - despite what is happening just now, I remain confident we can seize those opportunities and that is the vision I've got for the future.
BUDGET FORECASTS Growth - Minus 3.5% in 2009, rising to 1.25% in 2010 and 3.5% in 2011Debt - Doubles to 79% of GDP by 2013Deficit - Rises to £175bn for two years before falling to £97bn in 2013/14 SNP attacks spending 'cut' Wales faces £416m budget squeeze NI reaction to Darling's Budget
"Today doesn't look good in terms of headlines and I've been resigned to that for some time, but I believe we have reason for confidence and we should not get ourselves into a reason of believing otherwise."
Liberal Democrat Treasury spokesman Vince Cable said the Budget figures were "utter fantasy".Liberal Democrat Treasury spokesman Vince Cable said the Budget figures were "utter fantasy".
He added: "I just didn't understand where this spectacular growth rate, this 3.5% which they're assuming a year from now... came from."He added: "I just didn't understand where this spectacular growth rate, this 3.5% which they're assuming a year from now... came from."
His party leader Nick Clegg said the "lamentable failure" of the government to get its predictions right would lead people to believe it was living in a "fantasy world". The Confederation of British Industry raised concerns about "optimistic" growth forecasts, but the Unite union said the Budget had put "Labour back on the side of working families".
The Confederation of British Industry also raised concerns about "optimistic" growth forecasts. Mr Darling said public spending would grow by only 0.7% per year from 2011 - a lower rate than when Margaret Thatcher was in power.
But the Unite union said the Budget had put "Labour back on the side of working families" and the British Chambers of Commerce, which said there were some "good measures" to help businesses.
BUDGET FORECASTS Growth - Minus 3.5% in 2009, rising to 1.25% in 2010 and 3.5% in 2011Debt - Doubles to 79% of GDP by 2013Deficit - Rises to £175bn for two years before falling to £97bn in 2013/14 SNP attacks spending 'cut' Wales faces £416m budget squeeze NI reaction to Darling's Budget
Mr Darling's squeeze on public sector finances is also likely to come under further scrutiny as opposition parties seek more details of where cuts might come.
The chancellor said spending would grow by only 0.7% per year from 2011 - a lower rate than when Margaret Thatcher was in power.
Budget measures aimed at helping companies include deferring business rate payments, a £2,000 payment to car-buyers who scrap vehicles more than 10 years old and finance help for the construction industry.
The director-general of the British Chambers of Commerce, David Frost, said: "I think there's an understanding now from the chancellor that it's business that hauls us out of this very deep recession.
"It will no longer be public expenditure. It won't be the consumer. It will be business. So there are I think a number of measures in there that have the potential to really start to stimulate some business growth."