Davis promises £1200 tax cuts

In a bold move designed to restore momentum to his bid to succeed Michael Howard, Mr Davis proposed a £38 billion cut in the nation's tax bill over the course of the next Government, but insisted it could be achieved without cutting public services.

In a side-swipe at his rival David Cameron, he warned Tories they would make "the gravest mistake" if they sought to ape New Labour just at the point when public opinion was turning against its tax-and-spend policies.

Tax is rapidly becoming the main area of policy difference in the race for the Tory leadership, with Mr Cameron warning Conservatives against making tax cuts the centrepiece of their appeal to voters.

Mr Davis will today put it at the heart of his campaign by signing a Tory Tax Pledge, which would commit the party to "spend wisely, cut taxes, generate growth".

In a speech at the University of London, Mr Davis will say his plans could lead to an 8p reduction in the basic rate of income tax, from the current 22p to 14p, saving the average family around £1,200 a year by 2014-15.

And he will set out an alternative tax-cutting strategy which would use the same money to cut income tax by 2p, corporation tax by 3p and scrap altogether inheritance tax, stamp duty and capital gains tax.

The reductions would not require cuts in public spending on hospitals, schools and other services, he will say. The amount spent by the state would continue to grow each year, but at a slower rate than the growth of the economy.

By committing themselves to a "growth rule" to ensure that public spending increases by one percentage point less than the overall growth of the economy - expected to average 2.5% over the coming decade - Mr Davis said Tories could reduce the proportion of Britain's GDP taken in taxes from the 42% he expects to inherit from Gordon Brown in 2009 to 40% by 2014-15.

He will say: "We need to move from a spending agenda to a growth agenda, where Government is focused on achieving value for taxpayers' money and public spending discipline ensures that there is room to lower the tax burden."

With the UK's tax burden rising towards a 25-year high and growth at a 12-year low, Mr Davis will argue that there is a compelling economic, moral, and political case for a low-tax agenda.

He will say that high taxes fall disproportionately on the poor and reduce opportunities for people to move out of poverty.

And he will warn Conservatives that attempts to copy Labour's tax-and-spend approach would lead to electoral disaster.

"The political sands are shifting," Mr Davis will say. "Gordon Brown's high-tax, high-spending experiment is running into trouble.

"Every independent forecaster is predicting that his sums do not add up and that he will have to put up taxes again. It is also increasingly clear that spending without reform has wasted taxpayers' money by failing to deliver sufficient improvements in public services.

"We will make the gravest mistake if we seek to ape the New Labour project at the moment when it is seen to have failed. People are yearning for an alternative to New Labour, not a repetition of it.

"The Conservative Party has a choice. We can either continue to accept the terms of the debate set by Tony Blair and Gordon Brown, with ever higher spending and taxes. Or we can set a distinctive Conservative agenda for the future.

"We can either join the ranks of centre-right parties around the world, such as the Republicans in the United States and the Liberals in Australia, which have won by cutting taxes. Or we can remain frozen in the headlights of a centre-left agenda, and continue to lose."

Experience in countries like Ireland, Australia and the US showed that lowering taxes did not automatically lead to cuts in public services, Mr Davis will say.

He will hail the record of Australia, where public spending has grown slightly more slowly than GDP over the past decade, during which time economic growth has averaged 3.75% a year, compared to 2.8% in the UK.

"My approach doesn't involve cuts," he will say. "We are talking about how fast to grow spending.

"On the contrary, those who argue for a faster rate of spending growth have to address the question of where the resources will come from."

Mr Cameron is today meeting Conservative activists in Bexhill-on-Sea, East Sussex.

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