Lib Dems unveil plans for £15bn tax on the rich

Tax increases totalling £15bn on "baby boomers" who profited from post-war prosperity are to be a cornerstone of the Liberal Democrats' campaign for power at the next general election.

The package of tax plans unveiled yesterday by Vince Cable, the Lib Dems' Treasury spokes-man, would radically redistribute wealth from the middle classes to those on lower incomes.

The proposals also include radical "green" taxes to protect the environment. They include raising vehicle excise duty on "gas guzzling" vehicles with large engines from £210 to £2,000 and replacing the "ticket tax" at airports with a tax on each plane leaving Britain, which could add an average £35 to the cost of each flight. But the most controversial aspect will be the plans to target the "baby boomers" born in the 1950s, who have benefited from "generous" tax rules, company pensions and higher property prices.

Mr Cable said the tax proposals would lead to a more egalitarian Britain. But critics may compare his proposals to the threat by Labour's former Chancellor in the 1970s, Denis Healey to make the "pips squeak" with higher taxes on the rich. The main tax increases include:

* Removing allowances on capital gains tax (CGT) raising an additional £4.5bn.

* Cutting allowances on CGT of £8,800 a year to £1,000, raising £1.7bn extra for the Exchequer.

* Halving tax allowances on pensions for those on the higher rate of tax from 40 to 20 per cent to bring them into line with those on low incomes.

The wealthy would also pay more under Lib Dem plans for a local income tax to replace the council tax and changes to inheritance tax to relate it more to the wealth of individuals rather than the size of their estates. Lifetime gifts would no longer be exempt from tax, but thresholds - the point at which the tax is paid - would be raised. Stamp duty would be reformed in progressive stages..

But Lib Dem traditionalists will be upset that the leadership is proposing to scrap its former commitment to a higher 50p rate of income tax for those earning £100,000 or more. Evan Harris MP yesterday called for it to be retained for those earning £150k a year. Mr Cable is expecting a row at next month's party conference but he will argue that the £5bn raised on the "totem" of a 50p tax rate will be trebled by his other tax increases.

The Treasury spokesman stressed the Liberal Democrats were also ditching their commitment to raise extra spending for public services with higher taxes. The package is broadly cost neutral, and would not be used to raise higher spending on health or education, which have seen big increases under Labour.

Many Labour voters may be attracted by plans to take more lower paid out of tax altogether. Under Gordon Brown, an extra 1.2 million have been dragged into the higher rate of tax by a failure to index-link the threshold. The starting point for the 40 per cent upper rate of tax would be raised to £50,000 a year. Mr Cable said he wanted to take "two million out of tax",by abolishing the 10p starting rate of income tax and raising the starting point for National Insurance Contributions.