Cameron rejects party's call for £21bn package of tax cuts

David Cameron will offer limited cuts in personal and business taxation in an attempt to head off Tory demands for a £21bn package of tax cuts recommended by a party policy commission.

The Tory leader disclosed that he plans self-financing cuts in personal taxes using revenue from higher green taxation on actions which harm the environment. He also announced plans to streamline business taxes to finance a reduction in corporation tax from 30 per cent to 25 per cent.

But Mr Cameron will not endorse a 176-page blueprint by the party's Tax Reform Commission, which calls for the basic rate of income tax to be cut from 22p to 20p in the pound and 2.5 million people to be taken out of the tax net by abolishing the 10p starting rate and raising the personal allowance to £7,185 a year. It also proposes the abolition of inheritance tax at a cost of £2.6bn and scrapping stamp duty on share transactions, which would cost £3bn.

The report will be formally launched today but the Tories were embarrassed yesterday when the report was published on the party's website. Labour, which spotted the mistake, was quick to put its gloss on the report to the media, forcing the Tories to rush it out it out a day early.

The report will reignite the simmering debate in the Conservative Party over whether it should make a firm promise of tax cuts at the next general election. Right wingers fear the party would alienate its natural supporters if it fails to offer big tax reductions.

However, Mr Cameron is determined to face down such demands, arguing that economic stability must come first.

Right-wing Tories will seize on the commission's findings as evidence that "upfront" tax cuts can be promised. Lord Forsyth of Drumlean, the Thatcherite former cabinet minister who chaired the commission, said in its report: "While the speed of the journey is a matter for political judgement, the destination is clear - a simpler, lower, flatter, fairer and more stable system."

According the commission, the tax burden in the UK is high in both historic and international terms and is damaging growth and competitiveness. It insisted that its programme was "not expensive" but "necessary and achievable".

The leak of the report sparked a row between the two main parties last night. Ed Balls, the Economic Secretary to the Treasury, said: "These are tax cuts for the few. This is the same old Conservative Party... The scale of the tax cuts is massive. They could only be paid for by big cuts in public spending."

George Osborne, the shadow Chancellor, welcomed the report. He said: "The commission has given us 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 added: "Sound money means that stability will always come before promises of tax cuts. We will not be promising upfront, unfunded tax reductions at the next election. We will, however, rebalance our tax system.

"Green taxes on pollution will rise to pay for reductions in family taxes. This report sets out some options for doing that."

Speaking in London yesterday, Mr Cameron outlined a three-point strategy: making economic stability the Tories' number one priority; simplifying business taxes to help pay for lower headline rates and rebalancing the system by "shifting the burden of tax from families, aspiration and opportunity to pollution and carbon emissions."

The recommendations

The Conservative Party's Tax Reform Commission says its proposals would leave a low income couple earning £15,000 a year £1,808 better off. A middle income couple with joint earnings of £35,000 would be £507 better off a year, and a pensioner with an annual income of £8,500 would be £122 better off a year. The proposals include:

* Reduce the basic rate of income tax from 22p to 20p in the pound. Cost: £7.4bn.

* Raise the personal allowance to £7,185 and abolish the 10p lower rate of tax. Cost: £5.9bn.

* Bring in transferable tax allowances for couples with a child aged five or under. Cost: £900m.

* Abolish or reduce employees' tax-free benefits. Saving: £1.1bn.

* Restrict child tax credit to basic rate taxpayers only. Saving: £600m.

* Replace inheritance tax with capital gains tax on death. Cost: £2.6bn.

* Abolish stamp duties on UK share transactions. Cost £3bn.

* Corporation tax cut from 30 per cent to 25 per cent. Cost: £8bn.