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Miliband 'open' to benefit cap cut

Ed Miliband has said he is "open to" a reduction in the £26,000 limit on household benefit payments, as he confirmed he will keep the welfare cap if he is elected prime minister.

Chancellor George Osborne has claimed that Labour is planning a "tax bombshell" equivalent to 3p on income tax or three percentage points on national insurance, because it will not match his pledge to deliver the £30 billion fiscal consolidation needed to eliminate the deficit through spending cuts and welfare reductions alone.

But Mr Miliband said he did not "accept" the £30 billion figure and would not "pluck figures out of the air" on the total level of consolidation required or the percentage of it which Labour would fund from taxes.

He said the "huge difference" between his plans and the Chancellor's was that Labour would focus on raising living standards and wages, including by increasing the minimum wage to £8 an hour. This would help pay down the deficit by increasing tax revenues and reducing the cost of in-work benefits for those on poverty wages, he said.

"If we just try to cut our way to getting rid of this deficit, it won't work," the Labour leader told BBC1's Andrew Marr Show.

Mr Osborne told the Sunday Times that any party rejecting his plan to balance the books purely through cuts was "either offering the country a tax bombshell or a borrowing bombshell or both". He has written to Mr Miliband demanding that the Labour leader make clear whether he is planning £15 billion worth of tax hikes.

Conservatives claimed that Mr Miliband had let slip his plans in response to a suggestion by Marr that Labour's promise to eliminate the current deficit by 2020 would require "cuts or tax rises, or both", to which he replied: " Indeed. Indeed."

Tory chairman Grant Shapps said: "Ed Miliband has admitted that there will be billions of pounds of tax rises under Labour. Hard-working people have a right to know what taxes Labour would put up."

But Mr Miliband said his deficit reduction plan would involve not only cuts to non-protected departments and tax hikes - including the restoration of the 50p rate on earnings over £150,000 and a mansion tax on homes worth over £2 million - but also action to tackle low pay.

Increasing the minimum wage would save "many hundreds of millions" on welfare payments which were effectively propping up low-paying employers at taxpayers' expense, he said.

Tories claimed that Mr Miliband would split the burden of deficit reduction equally between spending cuts and tax rises, on the basis of an interview in 2010 - before he became leader - in which he said Labour needed to look at "the right balance" and noted that Conservative chancellor Norman Lamont had previously adopted a 50/50 approach.

But Mr Miliband said: "I don't think you can pluck a figure out of the air, because what we have learnt over the course of this Parliament is that the Government has made the cuts and raised some taxes and they have spectacularly failed (to eliminate the deficit).

"Because this Government hasn't tackled the cost of living crisis, because we haven't seen the higher wages and higher skills we need in our economy, we haven't had the tax revenues in and we haven't paid off the deficit.

"We have a clear plan, which is a spending reduction but also, crucially, running our economy in a different way."

Mr Miliband was asked whether he was ready to consider a reduction in the £26,000 maximum on benefits a household can claim each year, after David Cameron announced he would cut it to £23,000.

The Labour leader said: "We are open to that, but we want an independent look at this so we get a cap that works."

He added: "We have said we will have a cap on welfare spending. We want to see a cap, but it has got to be done in the right way. The way the Government has done it drives bills up, not down."

Mr Osborne is hoping to flush out Labour's tax and spending plans by forcing a vote on a new Charter for Budget Responsibility in the House of Commons on Tuesday.

The proposed Charter would commit the Government to a goal of eradicating the structural current deficit on a rolling three-year horizon - which at the time of the next Budget will be 2017-18 - and ensure that debt is falling as a percentage of GDP by 2016-17.

Mr Miliband confirmed his party will back the Charter, but dismissed the vote as "a gimmick".

Meanwhile, Mr Osborne hinted that Conservatives will make a reduction in inheritance tax a central plank of their election campaign.

Tories promised in their 2010 manifesto to raise the threshold at which inheritance tax is paid from £325,000 to £1 million, but the change was blocked by the Liberal Democrats in coalition.

The Chancellor told the Sunday Times: "David Cameron has made it clear, as have I, that we believe inheritance tax is a tax that should be paid by the rich and we will set out our further approach closer to the election."

Labour has repeatedly claimed that Mr Osborne is planning a post-election hike in VAT to pay for promised i ncome tax cuts totalling £7 billion.

But Mr Osborne insisted: "I couldn't have been clearer that our plans do not involve tax increases, including VAT, because our plans involve cutting public expenditure and saving on welfare budgets."

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