Clegg offers a £700-a-year sweetener to the low-paid

A personal tax-free allowance of £10,000 was pledged yesterday by the Liberal Democrat leader, Nick Clegg, who predicted that it would make the low-paid £700 a year better off.

Mr Clegg said that his party's plans would mean a "fundamentally rebalanced" tax system. It would, according to figures supplied by HM Revenue and Customs, mean that four million people would be out of the income tax net altogether.

The new, enlarged personal allowance would be paid for by abolishing tax concessions for the better-off and closing loopholes.

The Liberal Democrats say the initiative is to be funded by abolishing 40p tax relief on pension contributions, which would raise £6.5bn; taxing capital gains at the same rate as income tax (£4bn); closing stamp duty and corporation tax loopholes (£4bn); and increasing the tax on many domestic flights and taxing flights by customer numbers rather than by flight (raising another £3bn).

Mr Clegg said: "These plans will give money back to people who really need it at the time when they need it most. It is time to end the unfairness that sees big businesses and the wealthy treating taxes as something to be easily avoided, leaving everybody else to pay out.

"Our plans wouldn't add a penny to the overall tax burden, but they would spread that burden far more fairly."

However, Mr Clegg's latest proposals do represent a change of tack by the Liberal Democrats, who had previously advocated reducing the basic rate of income tax by 4p in the pound, funded by a similar attack on middle-class tax perks plus cuts to the Department of Business's budget, and scrapping ID cards and the Child Trust Fund.

The change in tack from last autumn was seized upon by their opponents. The Financial Secretary to the Treasury, Stephen Timms, commented: "This is another example of a policy on the hoof by the Lib Dems.

"By completely changing his tax plans for the second time in less than a year, Nick Clegg is showing that he is out of his depth and incapable of making serious proposals for serious times. He even admits that he doesn't know how many people would lose out from his tax changes.

"What we are certain about is the Liberal Democrats would abolish the real help that people are getting through the Child Trust Fund, Health in Pregnancy Grants and the Tax Credit system."