Osborne hints at Tory 'flat tax' plan by the next election

George Osborne, the shadow Chancellor, has hinted the Tories could adopt the "flat tax" being embraced in eastern Europe, in an attempt to outflank Labour at the next election.

George Osborne, the shadow Chancellor, has hinted the Tories could adopt the "flat tax" being embraced in eastern Europe, in an attempt to outflank Labour at the next election.

Mr Osborne, 33, was promoted by Michael Howard to produce radical new ideas to give the Tories a boost after their third election defeat in succession. Introducing a flat rate of tax would steal a march on the other parties in Britain.

Lord Saatchi, a former Tory party chairman, attacked Mr Howard for refusing to campaign on lower taxes at the last election. Yesterday, Mr Osborne said Britain had to "wake up to the challenge" presented by competitors who were adopting the system.

He told a City audience at the Corporation of London that Britain needed to reverse falling competitiveness by creating a tax and regulatory environment in which business could thrive. "Ireland pioneered low business taxes and reaped the rewards. The United States two years ago cut taxes on dividends and business investment. Central and eastern European countries like Estonia, Poland and Slovakia have championed low flat taxes," he said. "There are many problems with introducing flat taxes into mature tax systems, but we had better wake up to challenge."

The idea has won the support of the centre-right think-tank the Adam Smith Institute, and is being studied by Liberal Democrats, but Mr Osborne is the first British politician to speak warmly of the advantages.