Tories aim to fight election on tax cutting manifesto

The Conservatives plan to offer tax cuts at the next general election in a shift aimed at highlighting the divide between their policies and the tax increases introduced by Labour.

Since becoming Tory leader last month, Michael Howard has played down the prospect of tax cuts and argued that they would take second place to improving public services under a Tory government. This has been interpreted as a signal that any reductions in tax would have to wait until the Tories had been in power for at least two years. But in an interview with The Independent yesterday, the shadow Chancellor, Oliver Letwin, disclosed that a package of carefully costed tax cuts could be included in the Tories' election manifesto.

Asked if the Opposition had ruled out making a pledge to cut taxes, he replied: "By no means. We are absolutely devoted to the instinct, thesis and strongly held view that Britain will only prosper over time if it is a low-tax rather than a high-tax economy."

Mr Letwin said the Tories were seeking to find savings in government spending and identify policies that they would scrap if they win power. At the end of this process, the savings would be earmarked for cutting government borrowing or tax cuts, he said.

The shadow Chancellor said: "There is some very serious work on this currently nder way to find further specific savings on programmes and bureaucracy. We will then explain the attitude we will take to how we use the money from those savings for either the diminution of the [government] deficit or reductions in tax.

"It will be absolutely transparent. All of those things we will lay out in good time for the election. But we are not going to make new commitments we can't be sure we can keep to. We want to have them really worked out before we make them."

Mr Letwin insisted that any savings would not involve cuts in "crucial public services" - a move likely to rule out reductions in education and health spending. He believed there was "considerable scope" to reduce the cost of running government departments, which the Tories claim has risen from £13bn to £20bn a year since 1997.

Senior Tories believe the Tories could alienate many natural and potential supporters if they abandon their traditional platform of offering tax reductions. They are convinced the party's electoral prospects would be enhanced if they put "clear blue water" between it and Labour - even if the proposed tax cuts were only limited in scope.

A YouGov poll published this week showed that 27 per cent of people would be more likely to vote Tory if the party cut taxes. The survey highlighted growing public hostility to the tax increases introduced by Labour since 1997.

Mr Letwin's shift will worry some Tory modernisers, who believe it would leave the party vulnerable to the charge that it would cut vital public services. The modernisers say this could play into Labour's hands, arguing that the Tories lost heavily at the last general election because people did not believe that they could be trusted on public services.

Labour is likely to seize on confusion over the Tories' intentions on tax. In another interview, published yesterday, Mr Letwin suggested that the Tories would not go into the election saying they would reduce the tax bill. He added: "If we do that, Gordon Brown will just accuse us of slashing and burning public services. People may tell you they don't want to pay more tax but they will rebel if they think we're going to cut funding on schools and hospitals."

Today Mr Letwin will attack the 60 tax rises Labour has brought in since 1997, when he responds to the annual pre-Budget report to be delivered by the Chancellor. He will warn that more tax increases are inevitable if Labour retains power at the general election.

Mr Brown is expected to raise his forecast for government borrowing this year to more than £30bn, up from the £27bn he predicted in his Budget in April. But he will argue that Britain has emerged from the global economic downturn in better shape than many of its rivals, with growth of between 2% and 2.5% this year, in line with his April forecast.