We may raise taxes, says Lord Mandelson

Lord Mandelson raised the possibility yesterday of increasing taxes next year if Labour wins the general election.

The Business Secretary opened the door to further increases as early as next March to help to bring down Britain’s record public deficit.

He told a business conference in London: “The new public spending review begins in March 2011 and we will prepare for that in a way that will enable us to judge much more carefully, what we have to do ... both in raising taxation, should that be necessary, or cutting public expenditure.”

A few hours later the peer stepped back from the threat, indicating that a review in 2011 would deal with spending cuts, rather than tax increases.

He added: “The time to judge those spending cuts will be when the spending review takes place, to kick into effect in March 2011. The Chancellor will determine these matters.”

However, the Conservatives’ ability to exploit Lord Mandelson’s admission was limited after the party was forced to correct a gaffe by Ken Clarke, Shadow Business Secretary. Both the Conservatives and Labour are nervous about scaring off voters with the threat of savage spending cuts and tax rises.

Workers and employers are already braced for a 1 per cent rise in national insurance (NI) from April next year while those who earn over £150,000 will pay a rate of tax of 50 per cent.

Mr Clarke had told a business audience hosted by the British Chamber of Commerce that the Tories would not be able to fight the election on a pledge to cut national insurance contributions (NICs). He warned that the Conservatives could make no such promise without access to the Treasury’s books.

Mr Clarke said that the Conservatives would not be in a position to tell voters before the election — expected on May 6 — whether they will reverse all or part of the 1 per cent increase in NI planned from April 2011.

The former Chancellor’s statement put him at odds with remarks by David Cameron in January when he said that the leadership would give its verdict before the election on whether to reverse a planned 1 per cent NI tax rise.

Within hours of Mr Clarke’s speech, a Tory spokesman said: “Ken is right to say that Budgets are difficult to penetrate from Opposition but our policy on NICs is clear — we will set out our position before the General Election.”