Labour plans to force second cut in fuel tax

LABOUR plans to make another bid to reduce VAT on fuel when Chancellor Kenneth Clarke unveils his tax-cutting Budget on Tuesday.

Shadow chancellor Gordon Brown is seeking to repeat last year's devastating Government defeat, which more than halved VAT on gas and electricity bills.

This time round, the Opposition will urge Tory MPs who were hostile to VAT to join Labour in slashing the rate from eight per cent to five per cent. That would deprive the Treasury of pounds 480m a year in tax revenue and throw the Budget into chaos.

The shadow treasury team is working on a Budget amendment that could attract the support of Tory back-benchers who believe the tax on fuel is a vote-loser.

Last December, Mr Clarke was forced to cancel plans to increase the rate of VAT on fuel from eight to 17.5 per cent, when Tory rebels voted with Labour to defeat the measure by 319 votes to 311, the Government's most humiliating defeat of this parliament.

He was obliged to return to the Commons with a mini-Budget that put up taxes on cigarettes, petrol and alcoholic drinks to recoup pounds 800 million of lost revenue.

The Opposition will attack the Budget as "unfair", but Labour's own tax plans came in for sharp criticism from a senior Cabinet minister. Stephen Dorrell, Secretary of State for Health, accused Mr Brown of "fiscal incontinence" and "economic witchdoctory" in proposing a new income-tax rate of 10 per cent.

Claiming that the Budget could re-define the case for re-electing John Major's Government, Mr Dorrell said the Tories had been helped in this by the shadow chancellor's "crass irresponsibility".

"To the CBI, Gordon Brown promises more generous capital allowances. To small business, Mr Brown promises more generous VAT treatment. To low- income groups, Mr Brown promises a 10p rate of income tax."

The Health Secretary said Labour offered "fiscal incompetence coupled with a Government guarantee. That is what led to disappointment and social unrest in the relatively stable 1970s. In the changing world of the 1990s, the damage would be far greater."

However, Robin Cook, the shadow foreign secretary, who was said to be at loggerheads with Mr Brown, yesterday came out with a robust defence of his 10p tax plans. "The proposals are right. They would help lower- and middle-income earners - the decent, hard-working majority of this country who have seen such steep tax rises in the last three years - and they would help the unemployed back into work."

Mr Cook agreed that the Budget opens a long election campaign. "The Chancellor effectively fires the starting gun when he gets to his feet on Tuesday," he said.

Cook v Brown, page 8