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Last Updated: Wednesday, 18 October 2006, 21:51 GMT 22:51 UK
Tory group urges 21bn tax cuts
David Cameron
Mr Cameron has said stability is more important than tax cuts
The tax system should be radically simplified, offering cuts worth up to 21bn, a Conservative policy group is to recommend.

The Tax Reform Commission, set up to advise the Tories, proposes cuts in personal and business taxes - including reducing basic income tax to 20%.

The shadow chancellor said they would accept some ideas and reject others.

Labour said it showed the Tories would take risks with the economy, while Lib Dems said they were "confused" on tax.

The commission's report, due to be published on Thursday, will say the current tax system is too complex and risks making Britain less competitive.

Some we will accept, some we will modify, and others we may reject
George Osborne
Shadow chancellor

It wants to reduce the basic income tax rate from 22% to 20% and remove 2.5 million low earners from paying tax by abolishing the 10% lower rate.

The earnings threshold, below which people do not pay income tax, would increase from 5,035 to 7,185.

The commission also backs abolishing stamp duty on shares and cutting business taxes in its report.

And it recommends abolishing inheritance tax and replacing it with a "capital gains tax on death", which would not be levied on family homes.

The main corporation tax rate would be lower and more "competitive internationally", the report adds.

The commission was set up to advise the Conservative Party on tax policy by former Tory leader Michael Howard.

But BBC political editor Nick Robinson said it was "definitely not part of [current leader] David Cameron's script" - and could prove awkard for him.

Mr Cameron has said he will not promise tax cuts unless they can be paid for.

'Hole in finances'

Shadow Chancellor George Osborne said the commission had outlined "a menu of options that merit serious consideration".

"Some we will accept, some we will modify, and others we may reject. But the framework of our tax policy is now set," he said.

Ed Balls, the economic secretary to the Treasury, said the proposed tax cuts would not help ordinary families and would leave a black hole in the public finances.

He added: "The scale of the tax cuts is huge. The problem is there is no indication here at all as to how it will be paid for.

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

"David Cameron has denied he would cut public spending. The hole in the finances that this would create is dangerous for the economy."

And Vince Cable, for the Lib Dems, said: "It is utterly irresponsible to present plans for swingeing tax cuts without saying who would pay for them."

He said the Tories' approach to tax was "totally confused" accusing them of changing "from week to week, depending on the audience".

The commission has not looked at council tax or VAT, the report, obtained by the BBC, makes clear.

It says: "Tax reform can work. The economies of other countries have benefited greatly from similar programmes of reform."

There had been reports that the commission, chaired by Lord Forsyth, had come under pressure from the shadow chancellor to water down its proposals.

Matthew Elliot, head of the Taxpayers' Alliance, an independent political lobbying group, described the report as "a good first step towards reducing tax bills for ordinary families".

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