Page last updated at 21:49 GMT, Tuesday, 15 July 2008 22:49 UK

Cameron won't rule out tax rises

David Cameron speaking to the CBI
Mr Cameron says firms are finding it hard to get the money they need

Conservative leader David Cameron has admitted taxes may have to rise if he becomes prime minister.

He pledged to match Labour's spending plans if he wins power but acknowledged that a worsening economic climate could force him to raise taxes.

In a speech on economic policy earlier he also called for US-style protection laws for firms at risk of going bust.

Meanwhile, Lib Dem leader Nick Clegg says he favours a tax cutting programme for people on low and modest incomes.

'Safeguard finances'

Asked on BBC Radio 4's Today programme whether an incoming Tory government would have to raise taxes, Mr Cameron said: "I hope that won't be the case because I do think we have more responsible spending plans now.

"Government always has to do what is right to safeguard the public finances.

What we have said is we can't over promise, we are very careful not to promise tax cuts because we knew the public finances would be difficult
George Osborne
Shadow chancellor

"And as I say the tragic thing now is that, at this point in the economic cycle, what the government ought to be doing is actually cutting taxes. It should be giving a fiscal stimulus to the economy."

The BBC's political editor Nick Robinson said the party was privately preparing for a situation where tax rises would be hard to avoid.

But shadow chancellor George Osborne told the BBC later: "We are not at that stage yet and I hope we wouldn't be at that stage.

"What we have said is we can't over promise, we are very careful not to promise tax cuts because we knew the public finances would be difficult.

"We have put stability first and of course our long term ambition is to be able to reduce taxes once you get government living within its means."

'Lower tax burden'

Robert Chote, director of the Institute for Fiscal Studies, said the weakness of the economy, housing market and stock market meant "whoever wins the next election is likely to be under pressure to increase taxes, rather than have scope to cut them".

But Lib Dem leader Nick Clegg said earlier he hoped to fight the next general election on a radical tax cutting programme.

He told the BBC: "The Liberal Democrats are pledged to lower the tax burden on people on low and middle incomes and we are in the middle of an exercise now to identify up to 20bn worth of government spending that we think could be better spent elsewhere - or could represent money which could be given back to people directly."

We have already made changes to UK law into the Enterprise Act 2003 to help companies through difficult times
John Hutton
Business secretary

In a speech to the CBI, Mr Cameron also said the Conservatives would adopt a version of the US chapter 11 bankruptcy protection scheme to give businesses a "breathing space" to establish funds and save job.

Mr Cameron said the credit crunch meant more companies were finding it hard to get hold of the funds they need to survive - and are increasingly facing liquidation, leading to job losses.

"In America they have Chapter 11 which is a stay of execution," he told BBC Radio 4's Today programme.

"Instead of companies going straight into liquidation and having to lay off staff, they get a stay of execution and they can be restructured to try to save the business, to try to save the jobs.

"Now that doesn't actually cost taxpayers money, but at a time when we've got economic difficulty and at a time when companies may get into these sorts of problems, we ought to be taking action now, showing leadership now to try to save those jobs."

US companies filing for chapter 11 keep control of their assets and daily operations as negotiations continue in the bankruptcy court.

'Incompetent executives'

The Conservative plans would allow courts to grant protection to a UK business that could not pay its debts, but had a good chance of restructuring successfully.

Business Secretary John Hutton said the Tory plans would cause banks to tighten their lending and put more companies into trouble.

"We have already made changes to UK law into the Enterprise Act 2003 to help companies through difficult times," he said.

"Importing chapter 11 into the UK is a poorly thought through idea from the Tories. Chapter 11 in the US is a more expensive, court-based system of administration."

Liberal Democrat Treasury spokesman Vince Cable said: "The Conservatives claim to support free fair and competitive markets, yet they now seem hell bent on introducing a measure which only helps incompetent executives.

"Chapter 11 allows people who have mismanaged their companies to continue to run them free from their debt and pensions obligations."

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