Labour pledges huge fines on tax avoiders to raise £7.5bn a year

Emergency laws are key plank of party manifesto to be unveiled in Manchester on Monday, as Labour seeks to bolster its economic credibility

Labour will declare an immediate, all-out war on tax avoidance and evasion if it wins the 7 May election, pushing emergency laws through parliament designed to raise more than £7.5bn a year.

The plan, involving far higher fines and the closing of loopholes, will form a central part of Labour’s election manifesto, to be unveiled in Manchester on Monday.

The manifesto will seek to bolster Labour’s damaged economic credibility by focusing heavily on a strategy to “protect the nation’s finances” and will aim to highlight its message that working people should not have to pay more to compensate for tax abuses by the rich.

Shadow chancellor Ed Balls told the Observer that under Labour’s proposals, the chancellor and the head of HM Revenue and Customs would both be summoned annually before parliament to explain how they were performing against the target to claw back the £7.5bn a year. Balls said the target was “ambitious” but the aim was to hit it by midway through the five-year term.

He said: “We will close loopholes the Tories won’t act on, increase transparency, toughen penalties and abolish the non-dom rules. And our first budget will make sure that following an immediate review of HMRC, it has the powers and resources it needs to come down hard on tax avoidance and evasion.”

Labour believes its announcement last week that it would scrap rules that allow wealthy “non-doms”, who live here but claim to be domiciled overseas, to avoid paying tax in this country on what they earn outside Britain was hugely popular with voters.

It says that although George Osborne has announced that he wants to raise £5bn through tackling evasion and avoidance, he has been largely silent about how this would be done. Under the Labour plan, there would be an immediate assessment of the powers currently held by HMRC to tackle the issue, and swift moves to increase the ability to act when necessary.

Ministers and officials would rewrite rules that allow private equity managers to get away with paying less tax than ordinary people as part of a 10-point plan to tackle abuse. Penalties would be increased to ensure that tax abusers not only paid back all that they owed, but were also fined the same amount on top.

Labour sources said most of the £7.5bn would go towards paying down the deficit and described the target as ambitious but achievable. Conservative Treasury minister David Gauke said: “Ed Miliband and Ed Balls turned a blind eye to aggressive tax avoiding and evading for 13 years when they were in charge. We have taken action as part of our balanced plan to reduce the deficit – clawing back £7bn per year in lost revenue by forcing the wealthy to pay stamp duty on property, making sure bankers pay higher tax rates than their cleaners and ensuring big global companies pay their fair share of tax. And we will go further and claw back another £5bn in the next parliament.”

The plans were made public as Labour turned the tables on the Tories over the economy and spending by accusing them of coming up with entirely unfunded plans to spend an extra £8bn a year on the NHS. Health secretary Jeremy Hunt said that the money would come from the proceeds of future economic growth.

Launching Labour’s health manifesto, Miliband said: “The truth is that you can’t save the NHS if you don’t know where the money is coming from. You can only damage the NHS when you are planning colossal cuts in public spending, year on year on year, which is what the Tories are planning.”

The Liberal Democrat health minister Norman Lamb warned that the Conservatives were trying to “pull the wool over the British public’s eyes”.

The latest Opinium poll for the Observer gives the Tories a 2-point lead over Labour as support for Ukip falls. The Conservatives are on 36% (up 3 points) while Labour is up 1 point on 34%. Ukip has slid by 3 points to 11%.

Nick Clegg says in an interview with the Observer that he could work with Miliband and denies he would prefer to make another coalition deal with the Tories in the event of another hung parliament. He says his main objection to Labour is they lack credibility on deficit reduction, but he concedes that in other policy areas, such as Europe and the environment, his party is closer to Labour.

He reserves his strongest attacks for the Tories and says he will not sign up to any coalition deal that involves the Tory plan for £12bn of further cuts in benefits.

The Lib Dems will lay out their own plans to balance the books, which include cuts to the welfare bill of £3bn. Clegg says the Tories’ tactic of announcing £12bn in cuts but refusing to specify who they would hit is unacceptable. “It is impossible to do that without hitting children, without hitting the poor, without hitting the disabled. It is wilfully regressive.” He says he would “never accept” the Tory plan as part of a coalition arrangement.

On his plan to tackle tax avoidance, Balls added: “The Tories have spent the last week explaining why they won’t tackle tax avoidance and defending the non-dom loophole. They just don’t understand that, when working people are paying more in tax, it’s a scandal that some people can get away with not paying their fair share.”