Liberal Democrat leaders beat a hasty retreat yesterday from controversial plans to impose a "mansion tax" on the owners of £1m homes.
Although the policy proved popular with the public in surveys, it was heavily criticised by Lib Dem MPs in the south of the England who protested it would become an electoral millstone.
Nick Clegg, the party leader, and Vince Cable, its treasury spokesman, originally proposed a levy of 0.5 per cent on the value of a home above threshold of £1m. They calculated that the tax would raise £1.1bn a year from Britain's 250,000 £1m-plus houses.
Mr Clegg yesterday announced it would only be imposed on houses worth at least £2m, but at the rate of one per cent. He denied making a policy U-turn. He said the revised levy would raise £1.7bn from between 70,000 and 80,000 properties, with the owner of a £5m home paying £30,000 per annum.
The Lib Dem leader said: "We wanted to make sure a mansion tax by name was a mansion tax by nature. We didn't want family homes that might have got caught up in a local property bubble to be hit."
The retreat came as the party set out plans for a radical overhaul of the tax system. Its centrepiece would be an increase to £10,000 to the salary level at which income tax begins to be paid. Almost four million would be taken out of tax altogether, the party said.
The estimated £16.5bn cost of increasing tax thresholds would be raised by "green" taxes, closing tax loopholes, cutting tax relief for the wealthiest and cracking down on tax avoidance dodges.