Lib Dems offer 'tax breaks for spending cuts deal'

The Liberal Democrats placed reform of the "outrageously unfair" tax system at the centre of their election strategy today.

Party leader Nick Clegg said he would make a "deal" with the British public by offering tax breaks in order to make swingeing public spending cuts more acceptable.

Under the party's plans, the income tax threshold would be raised to £10,000, putting £700 back in the pocket of the average worker.

Speaking at the first regular press conference of the General Election campaign, Mr Clegg said: "Under Gordon Brown the tax system of this country is outrageously unfair.

"The bottom 20% of income earners in this country now pay a much higher proportion of their income in tax."

That gap has widened rather than reduced over the last 13 years under Labour, he added.

"At this election, if you are an ordinary income earner, if you are one of the millions of people on ordinary incomes, lower incomes in this country, the only party that will give you a fair tax break, put money back into your pockets, are the Liberal Democrats."

Mr Clegg continued: "Why do we think this is so important, why is this the centrepiece of our election campaign?

"Why is this the key policy we will be unveiling at our manifesto later this week? Firstly, because it is fair."

Mr Clegg said that, as politicians asked the public to accept stringent measures to cut the deficit, "we need to show people there is something in it for them".

He added: "I do not believe people will accept the difficult decisions ahead if they don't feel the tax system is working on their behalf.

"Secondly, because it provides incentives to work. By raising the income tax threshold to £10,000, it provides an incentive to people who are seeking to get off benefits and into work, particularly low-paid work.

"We are a party that believes in work; this is a policy which will encourage work.

"Thirdly, by putting money into the pockets of millions of people who need a break, who are struggling to pay their bills, it will help the economy because they will be more likely to go on the high street and spend some of that money and so help the wheels of the economy turn."

The Lib Dem leader defended his warning of Greek-style social unrest if an incoming government used a small majority to push through draconian cuts in public spending.

Mr Clegg, who hopes to retain his Sheffield Hallam seat at the election, said that in his South Yorkshire community there was no single Conservative councillor or MP.

"If those people are suddenly told by a Conservative government, who sweep home on 32, 33, 34% of the vote... 'We're now going to take your pay away, we're going to take your pensions away', do I think people would accept that passively?

"No, I think they'd feel quite angry about it."

Faced with claims that the tax break amounted to an electoral "bribe" at a time when the Budget deficit stood at £167 billion, Mr Clegg said the measure would make spending cuts more acceptable to voters.

"If we're going to ask millions of people to accept very serious cuts in public spending to deal with the structural deficit, it seems to me there has to be a downpayment for them.

"If, in addition, we're not going to do anything to make taxes fair, to make taxes work for them, to provide a tax break to millions of people on low and middle incomes, then I think you're asking too much of people.

"So it's a kind of deal, if you like."

The £17 billion policy would mean 3.6 million people on low incomes would no longer have to pay income tax and would see the average pensioner's tax bill cut by £100, the party claims.

It would be paid for by closing loopholes exploited by the rich, cracking down on tax avoidance, introducing a new mansion tax on homes worth more than £2 million and increasing aviation duties.

One of the key measures is to tax capital gains at the same rate as income, a return to the system which operated under Margaret Thatcher's Tory government.

Lib Dem Treasury spokesman Vince Cable, appearing alongside his party leader at the press conference in Westminster, said: "We essentially want to go back to the system that operated in the days of Thatcher and Lawson, who understood very clearly that you had to have capital and income taxed on the same basis."

In the Labour-held seat of Swansea West, South Wales, which the Lib Dems are targeting, Mr Cable visited the charity Cyrenians Cymru which helps homeless and disadvantaged people.

He said his party's "radical" proposals would lift 3.5 million people out of paying income tax altogether, including 200,000 people in Wales.

"It's a tax cut worth £700 a year to the average worker. Of course this has got to be paid for - it's not just a give-away at all," he said.

"It's fully funded. Given the parlous state of the government finances, we are not suggesting the country can afford an overall tax cut, because it can't."

He said he was confident the policy would appeal to voters "right across the country".

"I think one of the reasons behind that is it's not just fair, it's giving people an incentive for work."