Tories to 'scrap tax for low earners'

THE Tories today announced they will offer £5bn in tax cuts at the next General Election. Party leader Michael Howard said the cuts would be aimed at the country's lowest earners and would be funded by £35bn in'efficiency savings' that the Tories claim could be made from 'Whitehall waste'.

In promising to raise tax thresholds and eliminate income tax liability entirely for those currently paying 10p in the pound, the Opposition leader appears to be sending a signal to low-earners that the Tory party would nolonger be the party of the rich.

However, it is thought large amounts would go towards higher-rate relief and inheritance tax cuts to keep higher-income earners and older homeowners happy.

The plan promises to plough £23bn back into health, education and defence, while the remaining £7bn would go on repaying debt. Howard will be hoping the proposals will not be swamped by the weekend's disastrous opinion polls and the defection of senior Tory Robert Jackson to Labour.

Releasing the details of proposals that were leaked over the weekend, Shadow Chancellor Oliver Letwin confirmed that the £35bn would come from massive job reductions and other savings in Whitehall, as identified by business trouble-shooter David James.

James claims, in his ambitious 'waste study', that Home Office spending could be cut by £1.6bn. He also identifies possible savings of £153m at the Foreign Office and £336m at the Department for Culture Media and Sport. In all, almost 250,000 jobs and 168 public bodies would go under James's proposals.

Concern over crime will make the Home Office changes particularly sensitive. James proposes cutting staff by almost a third, 30%, with 2,396non-frontline civil servants released from the central Home Office to save £165m. A new streamlined immigration service could speed up asylum processing and save £897m, according to the review.

{2} Transport Secretary Alistair Darling said the Conservative spending plans did not add up. 'Michael Howard, on his own admission, says that a substantial amount - £21bn out of the £35bn that he has identified - havealready been accounted for by the Government's efficiency savings,' he declared today.

'The result of that is that, if you have a Government that is committed to spending money it hasn't got, you either have to cut frontline public services or you increase borrowing. If you increase borrowing, interest rates, mortgage rates go up. The plans here lack credibility, the sums don't add up, you can't spend money you haven't got.'

Accountants and tax advisers were divided on the impact that the Tories' latest proposals would have.

Patrick Stevens, partner at Ernst & Young, said that as long as the Conservatives wanted to make a small number of targeted savings, they could use the £5bn in a 'quite effective way'.

'You could double the exemption threshold for inheritance tax, for instance,' he said. 'This would use £2bn, or you could put up the point at which people move from paying 22% income tax to 40%. If you moved it from £36,000 to £40,000, exactly the level which would most likely appeal to Mondeo Man, that would cost £2bn. All these things are do-able, but you have to decide how many of them youwant to do.'

PWC tax partner John Whiting said that the overall impact of a £5bn tax package could be quite limited. He explained: 'What do you get for £5bn? It's about 1% of total tax revenues and while it sounds like a lot of money once you divide it between the number of people you want to help, it's more limited.

'It's difficult to make it meaningful when you spread it around. If you raise the tax-free personal allowance by £100 it will cost about £600m, so an increase in personal allowances of £500 will cost £3bn. For someone on low pay it makes a difference of £50 a year, and for them every pound counts.'