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Last Updated: Thursday, 19 October 2006, 13:29 GMT 14:29 UK
Tories 'to be responsible on tax'
George Osborne
George Osborne says the tax system would be rebalanced
Shadow chancellor George Osborne has insisted the Conservatives will put economic stability ahead of tax cuts.

The party's Tax Reform Commission has outlined a 21bn package of cuts as part of a simpler, flatter tax system.

Mr Osborne said he would adopt some of the ideas but said other changes - such as higher green taxes - would mean the overall tax take would not be cut.

The Lib Dems say the Tories are in a muddle, while Labour say tax cuts would be financed by cuts in public spending.

Scrap the 10p starting tax rate
Raise tax-free earning threshold from 5,035 to 7,185
Abolish stamp duty on shares
Replace inheritance tax with capital gains tax on death. Not to be levied on family homes
Lower corporation tax rate

The review was chaired by Conservative peer Lord Forsyth, who said the proposals, which are not binding on the party, were realistic and would not need to be funded from cuts.

"21bn does sound like a big sum of money but it's actually roughly equivalent to the increase in tax that [chancellor] Gordon Brown has taken this year alone," he told the BBC.

"Over a parliament it's perfectly possible to fund that from sharing the proceeds of growth."

He said the tax handbook had doubled in size under Mr Brown and businesses were finding it impossible to understand compliance.

A simpler tax system and lower corporation tax was necessary - whoever was in government - if Britain was to remain competitive, he said.

These are tax cuts are unfair
Ed Balls
Economic Secretary to Treasury

Recommendations in the report include reducing the basic income tax rate from 22% to 20%, scrapping the 10p starting tax rate and raising tax-free earnings from 5,035 to 7,185.

It also backs replacing inheritance tax, abolishing stamp duty on shares, cutting business taxes and lowering the main corporation tax rate.

It did not consider council tax, VAT, business rates or environmental taxes - favoured by Tory leader David Cameron.

Mr Osborne, at the launch in the City, said: "We will not be promising reduction in taxation at the election. Any changes in taxes will be revenue neutral."

He said environmental taxes on pollution and carbon emissions will be increased to pay for reducing the tax burden on families and workers: "I want to tax the bad, not the good."


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But not everyone was convinced. Professor of Economics at University College London Stephen Smith said green taxes tended to raise "relatively modest amounts of revenue".

"I think they would run into taxpayer resistance if they raised anything like the sums of money to balance the tax calculation," he told the BBC.

"With a bit of effort you could get the revenue up to something of the order of 2 - 4bn, but beyond that I think would be politically very difficult."

Mr Osborne said the review had given him a "menu" of options to choose or reject, but added he was not going to write a Budget for 2009 in 2006.

He announced further Conservative studies into the proposals, including one into cutting stamp duty on shares and cutting business rates.

'A muddle'

Commission member and former Vodafone chief Sir Christopher Gent said axing stamp duty on shares would boost the value of British businesses, and therefore boost the value of "millions of people's pensions".

However, the economic secretary to the Treasury, Ed Balls, said the "huge" tax cuts would not help ordinary families and would leave a hole in public finance.

"The tax cuts are unfair. The majority of them will go to the few," he told BBC News 24.

People are finding it harder to live as taxes go up. Of course it's time for tax cuts
Wayne Morris, Port Talbot

"The problem is there is no indication here at all as to how it will be paid for," he said. "

"The hole in the finances that this would create is dangerous for the economy."

He said to pay for the cuts, the Conservatives will either increase taxes elsewhere or commit to "big spending cuts", which could see a deterioration in health, education, policing and other areas.

Lib Dem leader Sir Menzies Campbell also criticised the plans.

"Tory tax plans are in a muddle," he said.

"You can't produce plans for 21bn worth of tax cuts without saying how they would be paid for."

Shadow chancellor George Osborne on tax reform

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