We’ll fund spending by raising tax on £80,000 earners, Labour says

Labour will on Sunday reveal plans to increase income tax for people earning more than £80,000 if Jeremy Corbyn becomes prime minister, as the party seeks to bolster its working-class support after hugely disappointing local election results.

In a move that could meet resistance among Labour MPs representing wealthier parts of the country, including London, shadow chancellor John McDonnell will announce a “tax guarantee” for those he will define as “middle and low earners”.

It comes as the leadership faces growing recriminations over the local election results, including claims that it withheld funds from a key campaign for the West Midlands mayoralty where it suffered a humiliating defeat to the Tories.

McDonnell will rule out raising the standard rate of VAT or national insurance and promise not to hit those earning less than £80,000 with income tax rises. By setting the guarantee at this level, McDonnell will in effect be creating a new “wealthy” bracket for those earning over £80,000. In a speech foreshadowing tax plans to be included in Labour’s election manifesto, the shadow chancellor will say: “The choice at this election is very clear on tax, as there is currently only one party which is committing not to raise taxes on middle and low earners – and that is the Labour party.

“If Labour is elected next month we will guarantee that for the next five years there will be no tax rises for income taxpayers earning less than £80,000 a year, no hikes in VAT and no changes in your national insurance contributions either. The Labour party is now the party of low taxes for middle and low earners, while the Tories are the party of tax handouts for the super-rich and big corporations.”

Labour officials said that, under the plans, 95% of taxpayers would be guaranteed no increases in their income tax during the next parliament. But in a statement the party confirmed that those earning above £80,000 should expect to pay more to enable improvements to the health service, education and other public services: “Only the highest earners will be asked to contribute more in tax to help fund our public services that have suffered at the hands of seven years of Tory austerity,” the party said.

One senior MP, a former member of the shadow cabinet, said the tax policy could provoke angry reactions from Labour MPs in more prosperous areas where high salaries were not uncommon. “It looks like a policy to punish those who are getting on, and those who want to get on by earning more. It certainly will not go down well among our people in London.”

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The Tories have already released a series of posters accusing Labour of planning new “tax bombshells” to pay for their spending plans. But Corbyn and McDonnell believe the policy will help convince natural Labour supporters that they are serious in their determination to create a more equal country.

In a sign of the frustrations inside the party with just a month to go before the general election, multiple sources said desperate pleas for meetings for Labour’s West Midlands mayoral bid were ignored for months. They said the campaign was handed just a quarter of the finance it requested, and too late to make a difference. Labour lost around 400 seats, ceded control of several key council strongholds and failed to win mayoral contests in its heartlands of the West Midlands and Tees Valley.

Party sources told the Observer that funding given to Siôn Simon for the West Midlands mayoral campaign came so late it could not be spent without violating campaign finance rules. Simon was eventually defeated by fewer than 4,000 votes by the heavily-funded Tory candidate, former John Lewis boss Andy Street.

The defeat marked one of the lowest points in a bruising set of local elections that set off alarm bells over the party’s prospects for the general election. Despite Tory spending of up to £1m, several sources said that only about £125,000 of a requested budget of £500,000 was handed to Simon’s campaign, in two tranches from March. The second payment arrived just days before legal campaign spending limits kicked in, meaning it could not all be spent.

“Siôn’s campaign was in a dead-heat race and sounded the alarm that, without proper funding, we risked defeat,” said a campaign source. “The campaign was hung out to dry.”

However, party officials denied any suggestion the campaign had been ignored. They insisted that it was one of the best-funded of Labour’s local election efforts, while the party was having to divide up funding from a limited pot.

Yesterday at a rally in Leicester, Corbyn said he was still “fighting to win” the election on 8 June despite a set of results he described as “disappointing”. He said the party was under attack “because we are standing up to the elites who are determined to hijack Brexit to pay even less tax and take even more of the wealth we all create.”

The latest Opinium/Observer poll shows Labour 16 points behind the Tories with less than five weeks to go before polling day. The Tories are on 46% (down one point on a week ago), while Labour is unchanged on 30%. The Liberal Democrats are on 8% (up one point) and Ukip is unchanged on 7%.