Lib Dems promise to cut taxes for millions

Liberal Democrat leader Sir Menzies Campbell promised today to cut taxes for millions of lower and middle income earners.

In a keynote speech to mark his first 100 days as leader, Sir Menzies abandoned the party's commitment to raise taxes to fund improvements in public services.

Instead, he unveiled a radical package of cuts in personal taxation paid for by new environmental levies and a squeeze on the assets of the rich.

"I am quite clear that we are in a new political environment in which the era of big increases in central government spending is over," he said.

"The Liberal Democrats will not propose any spending increases without identifying savings. We will move from tax and spend to save and spend. I see no reason for any increase in the overall tax burden."

Sir Menzies put his party activists on notice that they could have to fight a general election within 18 months.

"I believe that given the Labour leadership - and deputy leadership - crisis, the General Election could come as early as October next year," he said.

He said that taxation policy was at the heart of the party's plans to create a fairer society.

"Taxation is complex, stealthy and unfair," he said.

"I want to redefine our approach to tax to reflect the growing sense in many low income and middle class households that taxes are unfair, over-complicated and penalise hard work.

"My aim is to cut the burden of direct taxes on the low paid and Middle Britain and pay for it by raising taxes on those who pollute the environment and on the very wealthy."

He said that he would "envisage" a 2p cut in the national rate of income tax to 20p while lifting around two million low paid workers and one million pensioners out of tax by raising thresholds.

He confirmed that the plans, currently being finalised by the party's tax commission, would mean a rise in "green" taxes.

"We are the one major party which takes the environment seriously and that does mean that environmental taxes will rise," he said.

He also confirmed he intended to abandon the commitment for a new 50p top rate of tax on incomes over £100,000.

"The very wealthy should pay more; but not in the form of 50p marginal rates on high incomes," he said.

"The 50p rate was an important symbol that we are a redistributive party. But the substance of the tax commission proposals shows that we can be both redistributive and innovative."

However the plans were dismissed as "completely "unrealistic" by Tony Blair.

"The idea that you can have some sort of nice, cuddly environmental tax that is going to yield you huge gains on income tax - forget it, unless you are prepared to do something that would squeeze people pretty hard," the Prime Minister told reporters at his monthly No 10 press conference.

"The danger of doing anything with airlines of too dramatic a nature is that you will just find that they will start rerouting elsewhere or refuelling elsewhere. They will find a million ways round it."

For Labour, Financial Secretary to the Treasury John Healey responded: "The Lib Dems can reverse their policies but their sums still don't add up.

"They are still committed to massive spending commitments which they can't pay for, especially if they now want to cut income tax.

"The truth is they can't afford their tax cuts or their spending commitments, and their promises on both fronts are just pipe dreams.

"We are now in the extraordinary situation where the Tories are promising 'dramatic' spending cuts but no reduction in tax, the Liberals are promising tax cuts and spending increases, and only Labour is guaranteeing to maintain a stable economy and sound public finances, and continued investment in our front-line public services.

"As long as the Tories and Liberals continue to make promises they can't keep, and reverse their policies from one day to the next, Labour will remain the only party trusted on the economy."

Friends of the Earth's economics co-ordinator Simon Bullock welcomed Sir Menzies' commitment to "green" taxes.

Mr Bullock said: "We welcome Liberal Democrat plans to shift taxation from those on the lowest incomes and on to those that pollute the environment.

"Green taxes have a crucial role to play in tackling climate change and protecting the environment. Unfortunately, despite initial enthusiasm, green taxation has fallen under Gordon Brown, and this is one of the reasons why carbon dioxide emissions have risen under Labour.

"The Government must use the tax system to make it easier and cheaper for people to go green."

Challenges facing the Lib Dem leader

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Sir Menzies faces a huge challenge gaining exposure against the meteoric rise of David Cameron. The 65-year-old politician's bearing - experienced and statesmanlike to his friends, "doddery" to his critics - sits uneasily alongside the fleet-of-foot Tory leader. Allies of the Liberal Democrat leader insist that Mr Cameron has left hostages to fortune, but the Tory leadership seems to be gathering support in key Liberal Democrat areas such as the environment.

Prime Ministers' Questions

Sir Menzies was sure-footed against Tony Blair yesterday on claims that the British government has been complicit in secret US rendition flights. However, other performances have fallen flat. Sir Menzies himself described Prime Minister's Question Time as a work in progress. His aides insist that he produced his best performance yet yesterday, but time will tell whether he can prove a long-term success in the Commons bear pit.

His Own Party

Muttering about Sir Menzies' performance and the party's disappointing showing in the local elections was fuelled when the former leadership hopeful Simon Hughes suggested he had until the party conference to prove himself. Mr Hughes was slapped down. However, Sir Menzies will have to ensure there is no pressure for a fresh face before the next general election.

Domestic Policy

A reputation as a respected statesman and commentator on foreign affairs has not helped Sir Menzies tough out the rough and tumble of his new job as party leader. The former foreign affairs spokesman still seems more confident on his familiar turf talking about Iraq, Afghanistan and extraordinary rendition than he has speaking on crime, schools and hospitals. He now faces a long haul building up his appeal on domestic policy in a string of speeches and launches between now and the party conference in September.

Poll Ratings

The Independent's latest poll of polls put the Liberal Democrats on 19 per cent, down two points on April and the equivalent of 43 Parliamentary seats at the general election - well down on the current total. The party won a 27 per cent share of the vote at the local elections, pushing Labour into third place, but were forced to admit the results were mixed. Party figures insisted yesterday that the poll ratings were better than those three months into Charles Kennedy or Paddy Ashdown's leadership, but Sir Menzies needs to push ratings into the 20s to show progress

Autumn Conference

The Liberal Democrats are proud of their history as a democratic party with policy ultimately decided by their party conference. However, aides openly admit that their party delegates have the capacity to upset the leadership's plans. Proposals to ditch the totemic planned 50p top rate of tax in favour of a radical reshaping of the tax system are almost certain to face opposition from some quarters. The traditional wing of the party could also object to Sir Menzies' attempts to shed the party's image as "soft on crime".