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Portillo: Brown must raise £10bn in tax and tell us which stealth taxes he's going to use

In a speech to Putney Conservative Association, the Shadow Chancellor, the Rt. Hon Michael Portillo:

"The election campaign's first seven days has delivered to the Conservatives victories on the key issue of taxation. This morning Gordon Brown was busy highlighting the Conservative agenda of cutting taxes in the next Parliament while at the same time confirming his own plans for raising £10bn of stealth taxes if Labour are elected.

Last week, independent economists revealed that if Labour were to continue with their proposals to increase government spending faster than the economy can grow, they will have to raise taxes by £10 billion. Labour has been unable to deny it. They have made no attempt to alter their policies so as to commit to a sustainable rate of increase in government spending that wouldn't require such tax rises. At the end of the first week, the question is not whether Labour would raise taxes, but only which taxes they would raise.

There too things have gone badly for the government. It has committed itself not to raise the rates of income tax. That is a typically empty promise. People know that they said that last time. And they know that those weasel words left Labour free to raise income tax in other ways, by abolishing mortgage interest relief and married couple's allowance, and shaving allowances so that hundreds of thousands of middle-ranking professionals and public servants have been forced to pay top rate tax.

It also left Gordon Brown free to raise a host of other stealth taxes - 45 in all. He taxed alcohol, cigarettes, holidays and house buying. He taxed businesses, making them less competitive. The continuing toll of closures and job losses in manufacturing, including the new industries, tells its own tale; as the Director General of the CBI, Digby Jones, recently said: 'the reputation of the UK as a low tax economy where overseas investors want to invest is under serious threat'. And Gordon Brown shamefully raided the pension funds, siphoning off £5 billion a year of savers' money, guaranteeing that people will be worse off in their retirement than they were counting on and poorer than previous generations of pensioners.

Gordon Brown didn't want to rule out raising income tax rates this time. He knew that if he did so he would focus attention on what taxes he does intend to raise to pay for the £10 billion that he needs. The prime minister overruled him, but the Chancellor's fears were right. Everyone wants to know, if it's not going to be income tax rates, what taxes would be raised by another Labour government? The Prime Minister tightened the screw on his hapless Chancellor, by ruling out raising VAT. The focus narrowed further, but we still have no answers.

During this parliament Labour's favourite stealth tax has been the tax on petrol. Only it wasn't very stealthy. And it's a highly regressive tax. Those who have really felt the pinch have been those least able to pay. Under Labour, the poorest fifth have since their taxes rise more sharply than any other group. It's the pensioners and people with disabilities, those who live in the country and those hard-working families who struggle to get by who have been hit hardest by the rise in petrol tax. As the government rules out one tax after another so now it becomes more and more reasonable to assume that Labour in another term would revert to petrol - its favourite stealth tax - again. If all the £10 billion had to be raised that way, petrol would rise under Labour to £6 a gallon - £1.30 a litre. Labour have said nothing to suggest that they have another way to raise it.

The Conservative view is different. Labour's big mistake is not raising government spending per se, but promising to spend money faster than the nation can earn it. Naturally that requires the government to help itself to a growing proportion of national income. It is perfectly possible and appropriate to plan for higher public spending. That's what we plan to do. But it has to be at a rate that the nation can afford. It has to be sustainable. And it will be sustainable if the rate of increase in government spending is kept within the underlying growth rate of the economy. The underlying growth rate is an average - it takes in good years and bad years. If we keep public spending rising within the growth rate of the economy we can keep that up year after year. Over the next two years we plan to raise government spending by £66 billion, at the same time as opening up room for tax cuts of £8 billion.

Tax cuts of £8 billion in the first part of the next parliament is responsible and achievable. It represents a small percentage of total government spending, but sufficient to move from unsustainable growth towards sustainable growth in public spending. And it's sufficient to make important tax reductions for those groups of people who have been hardest hit by the Chancellor's stealth taxes.

No party in opposition has ever been more specific about how it would make changes to the government's spending plans and how it would use that leeway to reduce taxes.

The spending changes are set out in our manifesto. Actually they have all been in the public domain for some months, and during that period, despite the efforts of our political opponents those proposals have not been dented.

We've set out a series of reforms to improve the performance, efficiency and quality of a range of public services. Taken together, these reforms will save £8 billion by 2003/04, without affecting Labour's planned budgets for schools, hospitals or the police. We will use this money to fund much-needed reductions in taxation.

Reforming Welfare: We will tackle benefit fraud, replacing the current disjointed approach with a new single Benefit Investigation Squad. And we will reform the welfare system, for example by shortening the period in which the unemployed can turn down jobs without losing benefits and by requiring lone parents to seek work once their youngest child reaches the age of eleven. Money can also be saved on Housing Benefit by transferring responsibility for its administration away from the worst performing local authorities.

Reforming the Department of Trade and Industry: We will refocus the priorities of the Department of Trade and Industry to recognise that the best help government can give to business is to provide a stable economic environment with low taxes and light regulation. Government does not need to spend money on things like advertising export services, promoting e-commerce or trying to act as a venture capitalist.

Cutting the Cost of Government Administration: We will cut the cost of Government. Gordon Brown plans for the cost to rise by £4 billion above the level he inherited. In the three years before 1997, the last Conservative Government kept the cost of Government constant. There is no reason why the cost of Government should keep on going up and every reason why it should come down.

Improving Housing and Saving on Regional Bureaucracy: We will improve the quality of housing and save money at the same time by transferring council houses to the voluntary and private sectors. We will scrap Labour's Regional Development Agencies and, unlike Labour, won't waste money on a new tier of regional government. And we will sell assets that the Government doesn't need to own, like the QEII Conference Centre and Ordnance Survey.

Replacing the New Deal with a Better Deal and reforming the Employment Service: We will scrap the ineffective New Deal and give a better deal to the unemployed and taxpayers alike by hiring companies to find work for the long-term unemployed and pay these companies by results. We will also contract out the job-seeking role of the Employment Service, so that those who need most help finding work can be identified sooner.

Reforming Higher Education: We want to set Britain's universities free to compete with the best in the world. So we will change student loans in a way that won't leave students worse off, but will provide cash up front. This money can be given to universities for them to invest. The income from these investments will reduce universities' reliance on the taxpayer and secure their economic freedom.

Reforming culture and the arts: We don't believe that the Government needs to own Channel 4. Nor do we see why billions of pounds of lottery money should be sitting idly when it could be used productively. By selling Channel 4 and reducing the lottery float, we will be able to give one-off endowments to cultural bodies like museums and galleries, which will then need less money from the taxpayer.

Reforming Legal Aid: Finally we will reform legal aid. In return for receiving help, people will agree to give our New Community Legal Aid Fund a portion of the damages if their cases are won.

Conservative tax cutting agenda

The Conservative Party has outlined the priority tax cuts it will make in the first half of the next Parliament. By 2003, we plan to cut taxes by £8 billion a year to help hard-working families, pensioners and businesses. Our tax cutting agenda is designed to reward enterprise and responsibility.

We will reform and extend the new Children's Tax Credit for families with children under 5, reducing their tax bill by around £200 a year. We will cut taxes for widowed parents bringing up children by making the Widowed Mother's Allowance and Widowed Parent's Allowance tax-free. And we will introduce a new Married Couple's Allowance worth up to £1,000 for parents with children under eleven who choose to stay at home or work part-time.

We will abolish taxes on income from savings and dividends, except at the higher rate. At the moment people pay tax on any income they earn, but are taxed again on the interest, or dividends, from their savings or investments. We will get rid of this 'double hit' for millions of savers. There are 17 million households with savings and 12 million private shareholders - the vast majority of whom will gain from this proposal. We will also restore to 630,000 individual non-taxpayers in receipt of dividends the right to claim their credit in cash.

We will also increase by £2,000 a year the amount of income a pensioner can have before they start to pay tax, taking one million pensioners out of tax altogether. Of the remainder, many will pay £440 a year, or around £8.50 a week, less tax.

We will cut taxes for business. Conservatives will repeal IR35, Labour's stealth tax on entrepreneurs. We will abolish Labour's Energy Tax, which is hitting manufacturers and the Aggregates Tax which will hit the construction industry. We will cut business rates for small businesses. And we will improve share option schemes to encourage enterprise. Whereas Labour have piled an extra £5 billion a year of taxes onto business, Conservatives understand that business taxes must come down in order to keep and attract future investment, jobs, growth and prosperity.

Finally, as we announced in our Manifesto last week, we will cut the tax on petrol and diesel by 6p a litre, saving a typical car driver about £3.70 on every tank. After Labour have given Britain the most expensive petrol in Europe, Conservatives will cut the tax on fuel.

Our commitment to plot a sustainable course for public spending beyond 2003/04, so that it grows within the trend rate of growth of the economy means that we should be able to deliver further tax cuts in the second half of the parliament. That is the only prudent and sustainable policy for a Government to pursue. The Labour alternative is to go on increasing Government spending faster than the growth in national income, so that taxes have to keep on going up. This is imprudent, unsustainable and is subject to growing criticism.

As we set out in our Manifesto, our aspirations for tax reductions in the second half of the Parliament are to take people out of paying Inheritance Tax, because too many people of modest means are forced to pay it; take people out of the higher rate of income tax because deputy head teachers and senior police officers are being sucked into super-tax; and reform Capital Gains Tax.

The Conservative commitment to tax reductions is badly needed to give money back to those people who have been overtaxed. But there are wider reasons for cutting tax.

This Labour Government clearly believes that it is perfectly entitled to help itself to ever-higher amounts of people's money. The only fiscal rules that the government has place no limit on what should be raised in tax. They are free to spend what they choose and to tax as much as they choose in order to pay for it all.

Recently, the Prime Minister chose to justify the government's awful policy on taxing pension funds on the grounds that pension funds had grown with the rise in the stock market. Labour feels no need to explain why it takes away people's hard-earned money. Instead, it assumes that people should give government a good reason why they should be allowed to keep it for themselves.

That's what all Labour Governments have believed. It's why this Government has put up taxes just as Labour Governments always put up taxes.

Gordon Brown arrogantly believes that he has the moral high ground when he taxes hard-working people, taking from them the money that they should be free to spend on their families, so that he can redistribute it via the bureaucracies of the state. The government spends £12,000 of taxpayers' money a second, and everyone who has any dealings with government knows that too much money is wasted. The government claimed it would deal with waste and reform the welfare state. It has failed in those promises as in everything else.

We never forget that the money the government spends is the people's money. The surplus isn't the government's surplus still less Gordon Brown's surplus. It's the people's surplus. We believe in leaving people with more of their own money. We don't assume that government knows better how to spend it.

We think we should use the tax system to encourage people who decide to take responsible decisions. Gordon Brown has destroyed the savings culture. He has discouraged savings by abolishing PEPs and Tessas, and by taxing the pension funds. He plans to lure more and more pensioners into means-tested benefits. Under his plans more than half our pensioners, the people he has made poorer with stealth taxes, will be required to fill out long forms in order to receive an income from the state sufficient to live on, sufficient to pay the Chancellor's stealth taxes. When he was shadow Chancellor he promised to end means-testing for elderly people. He has increased means-testing hugely. Another broken promise.

Our tax policies have been designed to replace Gordon Brown's dependency culture with William Hague's responsible society. Our commitment to remove savings from tax will reward people for saving and encourage more people to save and our proposals to cut sharply the tax on people over 65 means that people who have built up savings over a lifetime will feel they did the right thing and were rewarded for doing the right thing.

Britain can't afford five more years of Labour.

Businessmen and women can't afford five more years of tax rises eating away at their firms' competitiveness.

Parents and patients can't afford five more years of rising taxes while their schools and hospitals just go on getting worse.

Families on tight budgets can't afford five more years of stealth taxes which hit hardest those who can least afford to pay.

And pensioners can't afford five more years of a Government that forces them to go cap in hand to the state for an income sufficient to pay all the extra stealth taxes.

Britain needs a tax break. It's time the people of this country were allowed to keep more of their own money. It's time to elect a Government committed to giving the people their money back. Gordon Brown thinks it is selfish to want lower taxes. But the mainstream majority think Gordon Brown is being greedy and incompetent - taking more and more of their money and delivering less and less in return."

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