Three new higher rates of tax would be levied, starting at an income level of about pounds 32,000 a year, with the top rate not exceeding 60 per cent, according to the party's new fiscal policy document, Opportunity and Independence for All.
It proposes abolishing the ceiling on National Insurance contributions, which will hit the middle classes. This proved disastrous for Labour at the last election. It was seen yesterday as a high-risk attempt by the Liberal Democrats to appear 'more left-wing than Labour' at the next general election.
That was coupled with the abolition of married couple's allowance and mortgage interest tax relief, and higher spending on benefits to help the low-paid out of poverty. The Liberal Democrats said that most people would be winners from a radical package of measures to provide a 'fairer, simpler tax system'. But abolishing the ceiling on NICs would hit many on salaries not far above the average income level of pounds 19,448.
Alan Beith, the Liberal Democrats' spokesman on the economy, said that work on the plans had been going on for two years, and he denied it was a response to the election of Tony Blair as the Labour leader.
The Institute for Fiscal Studies estimated that abolishing the NIC ceiling would hit about 1.5 million earners, but the figure could double depending on the rates of tax levied.
Labour said it was 'absurd' for the Liberal Democrats to announce their tax plans before establishing the policy proposals and the state of the economy.
Tory leaders were jubilant over the Liberal Democrats' tax document, which they regarded as an election gift to themselves. Jeremy Hanley, the Conservative chairman, said he hoped that his party could use it to recapture the support of voters who switched to the Liberal Democrats in a string of recent by-election defeats.
'It is political incompetence matched with economic suicide,' said Mr Hanley, who stood in the street outside the Liberal Democrat headquarters to attack their plans. He said that imposing super-tax on those earning more than pounds 100,000 'smacks of the politics of envy'.
But Chris Giles of the IFS said that proposal would affect only about 80,000 people, and raise up to pounds 1bn. 'It's more a moral crusade rather than an attempt to raise money,' he added.
The lower tax band of 20p in the pound would be replaced by a tax credit. 'The main advantage of this is that higher-rate taxpayers would gain only the same benefit from their allowances as basic-rate taxpayers,' the paper says.
The paper also proposes scrapping mortgage interest tax relief (MITR) and the married couple's allowance. The abolition of MITR would pay for improvements in housing benefit, and the married couple's allowance would finance a pounds 5-a-week increase in child benefit, which would remain universal.
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