Cameron scales down the Tory plan for big tax cuts

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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 commission.

The Tory leader said 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 radical 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 briefly 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 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. But 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, a 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."

The commission said the tax burden in the UK is high and is damaging growth and competitiveness. It insisted its programme was "not expensive" but "necessary and achievable". Ed Balls, the Economic Secretary to the Treasury, said: "These are tax cuts for the few. This is the same old Conservative Party. It's a party that will take risks with the economy. The scale of the tax cuts is massive. They could be paid for only by big cuts in public spending."

George Osborne, the shadow Chancellor, 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."

Mr Cameron has 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".