Lib Dems sacrifice tax relief to savings

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Political Correspondent

The phasing out of higher-rate tax relief on private health subscriptions and contributions to personal equity plans (Peps) received the backing of the Liberal Democrats yesterday, as part of a commitment to increase savings across all income groups.

A policy document for endorsement at next month's party conference calls for a new national save-as-you-earn scheme with tax-free returns, while renewing the commitment to compulsory occupational or personal pensions.

At the launch of the paper, Investment, Partnership and Sustainability, yesterday Malcolm Bruce, the Treasury spokesman, confirmed earlier proposals for increasing the top band of income tax to 50p in the pound on incomes over about pounds 100,000. But the party was unrepentant about hitting high earners twice by phasing out higher rate relief on items such as Peps.

The emphasis on savings is part of a wider theme of investment and economic stability. "What people don't want is sudden cuts in tax that then have to be reversed," Mr Bruce said.

For small and medium-sized businesses, there should be capital allowances for investments of up to pounds 200,000, the paper says, while local and regional authorities should have new powers to encourage regional development agencies and local investment banks.

The other key feature is environmental sustainability - a massive switch of taxes away from jobs to pollution via a phased-in energy/carbon tax, with half the yield going to reductions in employers' national insurance contributions and the other to compensate consumers for higher energy prices.