Sir Menzies Campbell will ditch the Liberal Democrats' policy of imposing a 50 per cent rate of income tax on incomes over £100,000 if he becomes party leader.
Sir Menzies will back moves by Vince Cable, the party's Treasury spokesman, to shed its image as a "high-tax" party, which is believed to have blunted its impact at last year's general election.
Mr Cable, who is backing Sir Menzies, wants the party to pledge that it would not increase the overall tax burden at the next election. Both men favour a "fair tax" policy, which would help the low paid by taking them out of the income tax net by raising tax thresholds.
They are likely to propose that the system be made more progressive without the higher top rate. Instead, the party may suggest higher capital gains or property taxes on the better off.
Sir Menzies fears that the existing policy sends a negative message that the party was against people with aspirations. As well as helping people on low incomes, he will unveil policies during his campaign aimed at helping Britain's underclass who, he will say, have been largely neglected by Labour since 1997.
His stance on tax is likely to put a distance between himself and his main leadership rival, Simon Hughes, who is seen by some fellow MPs as a "tax and spend man" who will back higher taxes. However, allies of Mr Hughes said yesterday that he would support the move towards a "fair tax" policy.
Mark Oaten, the party's home affairs spokesman, who has also entered the race, has floated a compromise under which the proposed 50p top rate would not bite until people earned more than £150,000.Reuse content