Labour is planning a £6bn tax raid on bankers and prime property owners to raise funds for new job creation schemes and other pledges.
Ed Balls, shadow chancellor, believes it is fair for the better-off to pay more to tackle unemployment and reduce a deficit expected to be running at £80bn at next year’s election – but his plans risk alienating business leaders and the City.
Mr Balls announced on Monday that a Labour government could introduce a second year of windfall taxes on bankers’ bonuses if the industry does not show more restraint. The party had already outlined plans to raise £1.5bn-£2bn from a tax on bonuses during its first year in office.
The money would help to fund a “jobs guarantee” for young unemployed people and would be supplemented with a £900m hit on the pension contributions of people earning more than £150,000 by restricting their tax relief to the basic rate.
The shadow chancellor has also vowed to increase by £800m the government’s annual £2.5bn levy on bank balance sheets, while a so-called “mansion tax” on properties worth more than £2m is expected to raise at least £2bn a year.
Mr Balls has also promised to increase the top rate of income tax from 45p to 50p for people earning more than £150,000.
Although the Treasury insists that increasing the top rate of tax would barely raise any revenue, Labour estimates suggest that the cumulative impact of its tax proposals on Britain’s highest earners and the City could exceed £6bn.
However, tax experts and Conservatives said the wealthy would find ways around the proposed Labour tax grab, especially having been given so much advance warning, leaving holes in the shadow chancellor’s spending plans.
Mr Balls’ team said the proposed bank bonus tax would be a repeat of the “one-off” levy announced by Labour chancellor Alistair Darling in 2009: this time it is intended for a single year, 2015-16. The shadow chancellor has not ruled out imposing a levy on future bonus rounds if banks do not rein in what he regards as the “excess” of this year’s payouts.
Mr Balls wants his guarantee scheme to create six-month jobs, primarily in the private sector, for under-24s who have been out of work for more than a year. It will also help adults aged 25 or over who have been claiming jobseeker’s allowance for more than two years.
Labour conceded that overall youth unemployment is falling but said it had remained stubbornly high for the “long-term” young adults out of work.
“Under David Cameron’s government the number of young people aged 18-24 claiming jobseeker’s allowance for over a year has doubled – from 28,300 in May 2010 to 56,100 today,” Mr Balls said.
The Tories said Labour had spent “10 times over” their proposed bankers’ bonus tax, which is now earmarked wholly to guarantee taxpayer-funded jobs for those aged 18 to 24 who have been out of work for a year.
Mr Balls has previously suggested that the bankers’ tax could pay for reversing the government’s value added tax increase; fund capital spending; reverse child benefit cuts; reverse tax credit changes and fund spending on public services.
The shadow chancellor admitted last summer that Labour could not reverse many, if any, of the cuts it had opposed in the early years of the current parliament. His aides say therefore he does not need to find the money to overturn those policies.