Tories unveil tax cutting options

Oliver Letwin says it's time for a change of direction on tax

The Tories are considering a plan to take more than a million people out of the higher tax rate.

The level at which workers begin paying a 40p tax rate would jump from £36,000 to £40,800, under one of a range of tax options unveiled on Tuesday.

If Shadow Chancellor Oliver Letwin gave the go ahead the proposal would save higher earners up to £800.

The proposal, estimated to cost £2.6bn, is one of five options in the Tories' consultation paper and is not policy.

The Conservatives plan eight tax consultation papers over the coming months focusing on what the Tories say is an unfair and over-complicated taxation system.

A change of direction is needed to help people on lower incomes and people trapped in top rate tax Oliver Letwin

Mr Letwin said: "Tony Blair claimed that he had no plans to raise taxes at all. That was all talk.

"By stealthily raising [tax rate] thresholds more slowly than the increase in earnings, Tony Blair has dragged 4.2m more people into paying income tax and 1.35m more people into paying top rate income tax.

"Part time workers in the minimum wage are now paying tax, and deputy head teachers are paying top rate tax.

"A change of direction is needed to help people on lower incomes and people trapped in top rate tax."

'No guarantee'

For Labour, chief secretary to the Treasury Paul Boateng said the Tories had not made a firm commitment to tax cuts "because none of their sums added up".

"They cannot make their savings and so the only guaranteed cut you will get from the Conservatives is an immediate £20 billion cut in spending on vital public services such as schools and hospitals, defence, police and transport, and science and skills.''

Liberal Democrat Treasury spokesman Vincent Cable accused the Tories of spending expected savings from cutting waste and bureaucracy several times.

"It's obvious that the Conservative Party believe they can't win the next general election as they continue to make promises with money they don't have.

"Fairer taxation is a desirable aim but it is an empty promise unless clear costings of policies are published. This is something the Liberal Democrats have been happy to do."

'Menu of options'

Entitled Income Tax and National Insurance Thresholds - A New Direction, the Tory paper published on Tuesday, unveils five options which aim to create a low tax economy.

But the Conservatives are keen to stress that the options being unveiled do not "constitute any guarantee or promise" that a particular option would form part of a future Tory government's budget plans.

Instead they "represent a menu from which a Conservative government may draw when formulating budgets", the party said.

The options are:

Indexing the personal allowance and the national insurance threshold to earnings rather that prices. This the Tories say would stabilise the number of people paying income tax and national insurance.

Raise personal allowances and the national insurance threshold to the point where someone on the minimum wage, working 20 hours a week becomes exempt from paying national insurance and income tax. This would mean only those earning more than £5,058 would pay income tax and national insurance, the Tories say.

Fix the income tax personal allowance and national insurance so that the same proportion of people pay it as did in 1997. This, the Tories say, mean only those with incomes over £5,318 would pay income tax and national insurance.

Index the base rate limit to earnings rather than prices. The Tories say this would stabilise the number of people paying coming tax at the higher rate.

Fix the income tax basic rate limit so that the same proportion of people are paying top rate tax as in 1997. Hundreds of thousands of people would be taken out of the 40% income tax band as a result, the Tories say, with only those on £40,764 or more a year paying the top rate.