Labour row as McDonnell says party would keep Hammond tax cuts if it took power

John McDonnell has come under fire from within Labour ranks after backing Philip Hammond’s income-tax cuts for millions of people.

The shadow chancellor said on Tuesday the party would respect changes to tax thresholds that would cost £9.5 billion in lost revenue in the next six years.

Instead, it would focus on creating a “fair taxation system” clamping down on evasion and avoidance and rolling back cuts to corporation tax, he told BBC Radio 4’s Today.

The Resolution Foundation think tank had said earlier its analysis showed the tax cuts would “overwhelmingly benefit richer households”, with almost half (45%) set to go to the top 10% of households alone.

The cuts were criticised as “tax cuts for the rich” by shadow foreign secretary Emily Thornberry on Monday and former Labour minister Andy Burnham said on Tuesday he did not understand Mr McDonnell’s support for them.

Asked if Labour would reverse the Government’s planned tax cuts, Mr McDonnell told Today: “We will support the tax cuts at the moment on the basis that it will inject some demand into the economy.

“But we put forward in the general election a fairer taxation system so that does mean that we will be asking the top 5% to pay a bit more in income tax and we will be rolling back many of the corporation tax cuts that have taken place, and we will be cracking down on tax evasion and tax avoidance.

“What we’ve said is we will leave those personal allowances at whatever we inherit but our focus will be on a fair taxation system.”

The personal allowance and the higher rate threshold will rise from April in a move Philip Hammond said would mean “a tax cut for 32 million people”.

The personal allowance, which is the minimum income someone can earn before paying tax, will rise to £12,500 from £11,850.

The higher rate threshold, the income at which someone becomes liable to pay the 40% tax rate, will rise to £50,000 from £46,350 at the same time.

Responding on Twitter to comments made by the shadow chancellor, Mr Burnham, now mayor of Greater Manchester, wrote: “At a loss to understand why we are doing this.”

Torsten Bell, director of the Resolution Foundation, added: “Labour says it will support the income tax cuts announced yesterday – almost half of which goes to the top ten per cent of households alone.

“Nearly 90% goes to the top half. Not a good idea.”