Clegg sees off rebels

Liberal Democrats backed plans to reduce public spending to fund tax cuts today as leader Nick Clegg saw off high-level internal opposition to secure backing for a significant policy shift.

Mr Clegg survived the first serious test of his leadership as activists at the party's conference overwhelmingly rejected a rebellion led by two senior MPs who wanted a firmer commitment to spend the cash on services.

The party leadership wants to use some of a projected £20 billion slashing of Labour spending to cut bills for low and middle income earners in a bid to snatch the votes of hard-pressed families struggling to pay food and fuel bills.

Left-leaning rebels, spearheaded by frontbench science spokesman Evan Harris and former parliamentary party chairman Paul Holmes, won vocal support for their demands during a hotly-contested 90-minute debate.

"What should I say to constituents of mine who tell me they want to help their sons buy basic pieces of equipment when their sons are sent to fight in Iraq: 'well, we'll give you a penny off income tax and you can make up for the defence cuts yourself'?" Mr Holmes asked, warning the party would be painted as a "Tory twin".

But Treasury spokesman Vince Cable warned their amendment would have "driven a coach and horses" through the "progressive and radical" plans and said the public was demanding the chance to keep more of their own money to spend as they saw fit.

Party members eventually voted down the amendment and backed Mr Clegg's 'Make It Happen' mission statement for the party unchanged, which his chief of staff Danny Alexander hailed as a "compelling agenda for the change Britain needs", almost unanimously.

The planned cuts are on top of an existing £20 billion pledge to cut basic rate income tax by 4p, paid for by hitting the super-rich and extra pollution penalties.

They come just two years after the party narrowly accepted the dropping of its totemic commitment to a 50p income tax rate for high earners and higher public spending.

Mr Cable earlier gave details of plans to part-fund the 4p income tax cut by closing "immoral" tax loopholes used by big firms and wealthy individuals to avoid handing £5 billion a year to the Treasury.

It includes a move to prevent expensive properties being placed into offshore trusts or other vehicles to avoid paying stamp duty, a practice Mr Cable said was a "gross abuse" that had saved supermarket giant Tesco £63 million.

Poorly-performing senior executives would also be prevented from exploiting rules aimed at protecting workers' redundancy payments from income tax to keep more of massive "golden goodbye" pay-offs. Capital gains tax rates would be raised to stop hedge fund managers and others avoiding income tax by classifying it as capital.

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