Osborne to reveal Tory tax U-turn

George Osborne will unveil an anti-recession package including some tax cuts, in a U-turn to allow the Tories to take the fight over the economy to a resurgent Gordon Brown.

The shadow Chancellor is drawing up proposals to combat unemployment, reduce fuel bills for those on low incomes and limit the number of house repossessions. Asked whether the measures would include tax cuts, a Tory source said: "We are always in favour of putting money into people's pockets." In his three years as Tory leader, David Cameron has refused to pledge "upfront tax cuts". But the Tories admit that the battle lines are changing as the Chancellor, Alistair Darling, prepares to announce tax cuts to keep the economy moving in his pre-Budget report a week today.

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The Tories will contrast their fully-funded package, financed by savings in government spending, with Labour's "irresponsible" tax reductions funded by higher levels of borrowing. Other changes to the Tories' economic policy could include:

* Shelving a "fair fuel duty stabiliser" to link petrol duty to the oil price now that this is falling

* Scrapping their pledge to match Labour's spending totals

* Limiting the scope of "green taxes" because of the looming recession

* Delaying their flagship plan to "reward" married couples through the tax system.

Although Mr Osborne will deny a U-turn, the change of strategy is bound to raise fresh questions about his judgement and provoke claims that the Tories are panicking. The shadow Chancellor has been accused by some Tories of a lacklustre response to the economic crisis and criticised him over the "yachtgate" affair in which he was accused of seeking donations to the Tory party from the Russian billionaire Oleg Deripaska.

Privately, senior Tory MPs are worried their party is being outflanked by calls for tax cuts by Labour and the Liberal Democrats. At their summit in Washington at the weekend, leaders of the world's 20 biggest economies backed tax cuts and spending rises to limit the downturn, allowing Mr Brown to paint the Opposition as out of step with the rest of the world.

Tory MPs argue that there is no point in waiting until the next election, expected in 2010, to set out plans for tax cuts. By then, the party may have to admit that taxes need to rise to balance the books they would inherit. One said: "We need to get back in the game – and quickly."

Oliver Letwin, the Conservative policy chief, is drawing up a list of spending cuts, including Whitehall "waste," that would not harm the economy. Building projects would be exempt. The savings would help the Opposition to fund its anti-recession measures. Cameron aides insisted Mr Letwin's initiative was not a blow to Mr Osborne's authority and dismissed as "for the birds" speculation that the Tory leader might move his close ally to another post.

Yesterday, the shadow Chancellor came out fighting over Labour claims that he had broken with political convention by predicting that soaring government borrowing could provoke a run on sterling. He told the BBC's Andrew Marr Show: "My job as shadow Chancellor is to tell the British people the truth about the British economy." He said the pound had already fallen more than it had under Labour governments in the 1960s and 70s, and after Black Wednesday – when Britain was forced out of the European Exchange Rate Mechanism. It was now at a 13-year low against a basket of currencies as "hard-headed markets" made judgements about the British economy – not about what politicians were saying.

Mr Osborne said: "The choice is very clear, change under the Conservatives, more of the same under Labour. Fiscal responsibility under the Conservatives, fiscal incontinence and imprudence under Labour."

The shadow Chancellor denied there was a "global consensus" that people should borrow without limit and cut taxes without showing how they would pay for them.

He said the 3,500-word statement agreed at the G20 summit dedicated only 21 words to fiscal stimulus, saying it should "be done where appropriate and provided it is consistent with fiscal sustainability".

"Gordon Brown told us before going to Washington that it was all about getting a global agreement for a fiscal stimulus package. He has not done that," he added.

Mr Darling criticised Mr Osborne's remarks on sterling, accusing the Tories of tearing up their pledge to support the Government in the financial crisis. "At a time like this... when we at home and when we with other countries across the world should be working together, that is what people expect and that is what I intend to stick to," he said.

The Chancellor refused to be drawn on his planned tax cuts but fuelled speculation that they could be implemented before Christmas by saying action needed to be taken "decisively" and "quickly".

Kenneth Clarke, the former Tory chancellor, said he had not heard "of any convention that opposition politicians cannot comment on sterling".

He insisted: "The foreign exchange markets had already made their minds up about the pound, regardless of any political comment."

He said Mr Osborne had "made a perfectly sensible comment".