By Andrew MacAskill and Alistair Smout
LIVERPOOL, England (Reuters) -Keir Starmer, leader of Britain's Labour Party, on Sunday pledged to reverse the abolition of the top rate of income tax, saying tax cuts for the wealthy wouldn't create economic growth as he made a pitch for power at his party's annual conference.
Starmer, who has led Britain's main opposition party for the past two years, said he would reintroduce the top rate of income tax to 45% after the government abolished the rate in a mini-budget.
Labour suffered a crushing defeat in the last general election in 2019 and Starmer is under pressure to assert himself as the prime minister-in-waiting with clear policies to challenge the governing Conservatives.
The selection of Liz Truss as new Conservative leader on a tax-cutting agenda earlier this month has immediately widened the ideological gulf between Britain's main parties.
"I see a very big political divide," Starmer told the BBC.
"I do not believe in this theory that it's only those at the very top, the very wealthy, that create and drive our economy. It's the working people across the country."
Finance minister Kwasi Kwarteng last week unleashed historic tax cuts, ditched the cap on bankers' bonuses and announced huge increases in borrowing in a fiscal statement which sent markets into a tailspin.
Starmer said a move by Kwarteng to cut the top rate of tax was "hugely divisive" and unfair because it handed someone earning 1 million pounds ($1.09 million) a 55,000 pound tax cut and would not trickle down to the rest.
"I would reverse the decision they made," Starmer said.
However, Starmer said a Labour government would not reverse the government's decision to cut the basic rate of income tax to 19% from 20%, saying that tax cut would benefit working people.
Starmer said Labour would focus on renewables and "grow the economy from the bottom up and the middle out", using exactly the same phrase that U.S. President Joe Biden did in a tweet where he said he was "sick and tired of trickle-down economics".
Asked about Biden's words, Truss said "I don't really accept the premise" that her approach amounted to trickle-down economics.
"We are incentivising businesses to invest and we're also helping ordinary people with their taxes," Truss told CNN.
MORE TAX CUTS
Kwarteng said that he was focused on boosting longer-term growth, not on short-term market moves, when challenged over the sharp fall in sterling and bond prices. He said there will be more tax cuts in the future.
"You don't deal with people's rising cost of living by taking more of their money in tax," Kwarteng told the BBC.
With the next election expected in 2024, Starmer is bidding to move his party towards the centre and preparing for a more ideologically-focused debate with Truss after his clashes with her predecessor Boris Johnson often focused on character.
Starmer has been criticised by some in his party for not spelling out clear policies to challenge the Conservatives, who have been dealing with crises ranging from sleaze to the highest inflation in four decades.
Labour is about 10 percentage points ahead of the Conservatives in the opinion polls but with the next election due in two years, some lawmakers said the party should be further ahead.
Andy Burnham, the mayor of Greater Manchester, earlier said Labour should oppose all the tax moves outlined by the new government.
Starmer led Labour party members in tributes to the Queen and a rendition of the national anthem - the first time the song had been sung at the party's conference in recent memory.
Despite concern that the singing would be likely to attract protests, the speech and anthem passed without any dissent.
Starmer said Labour was heading in the right direction, and that the hope that the party would win the next election had turned into a belief.
"I'm very pleased with the progress that we're making," he said. "To now be in a position where there's a belief that Labour will win the next general election is real progress for our party."
($1 = 0.9211 pounds)
(Reporting by Andrew MacAskill in Liverpool and Alistair Smout in London; Editing by Alexandra Hudson and Toby Chopra)