Tory hopefuls clash over tax cuts

Tax has emerged as the first real policy flashpoint

A tax battle has erupted in the Tory leadership race as David Cameron accused rival David Davis of planning tax cuts too soon before an election.

Mr Davis vowed to tear up the Tories' past "timid" tax policies as he unveiled plans for a cut of £1,200 a year for the average family.

Mr Davis wants £38bn a year tax cuts by the general election after next.

But Mr Cameron said it was "not sensible" to unveil such plans four years before the next election.

And he argued that Mr Davis's tax plans bore a "remarkable resemblance" to those used by the Tories at this year's election, and which had already been rejected by voters.

POSSIBLE DAVIS TAX CUTS 8p cut in the basic rate of income tax, from the current 22p to 14p OR cut income tax by 2p, reduce the main rate of corporation tax by 3p and scrap inheritance tax, stamp duty and capital gains tax entirely

The incident is the two leadership contenders' first significant skirmish over policy.

In a keynote speech earlier on Friday, Mr Davis said he could cut taxes without cutting services by ensuring public spending grows more slowly than the overall economy.

He said he "could not disagree more" with those who said tax policy should not be set out so far ahead of an election.

Instead, it would take time to persuade the public that reducing tax rates would eventually increase tax revenues by boosting economic growth.

"We cannot afford to be frozen in the headlights of the Blair settlement [of raising tax and spending]", he said.

He added: "The Tory party in the last decade has been too timid on tax."

'Wrong approach'

Mr Cameron was asked about Mr Davis' plans as he arrived to meet Conservative activists in Bexhill, East Sussex.

He said: "I do not think it is sensible to outline such proposals four years before an election.

"We cannot know the exact state the economy will be in, and whether or not it will be growing or shrinking. I do not think that is the right approach.

"These suggestions were made last time and they didn't seem to have much success."

Mr Cameron said the country needed a "dynamic and competitive economy" where the proceeds of growth should be shared between "tax reduction and extra public investment".

'First step'

The criticisms prompted a counter-punch from Mr Davis, who said his tax cutting pledges meant Tory members faced a clear choice in the leadership election.

"David clearly takes a more equivocal view of the importance of tax cuts," said Mr Davis.

He is not yet promising to cut specific taxes.

But he says the plans could lead to an 8p reduction in the basic rate of income tax, from the current 22p to 14p, representing a saving for the average family of about £1,200 a year by 2014/15.

Alternatively, they could be used to cut income tax by 2p, reduce the main rate of corporation tax by 3p and scrap inheritance tax, stamp duty and capital gains tax entirely.

There could also be transferable tax allowances for families with children.

Mr Cameron's campaign team says Mr Davis' policy is essentially the same as proposals advanced last year by then shadow chancellor Oliver Letwin.

Mr Letwin did not pledge firm tax cuts but said public spending should grow 1% slower than the economy as a whole and tax as a proportion of GDP should fall from 42% to 40% by 2011.