Lib Dem leadership contenders clash on tax in final pitch for votes

The three men running for the Liberal Democrat leadership clashed over tax and Iraq as they made their final pitch for votes in the race to succeed Charles Kennedy. Differences over a 50p in the pound top rate of tax and a timetable for withdrawing British troops from Iraq surfaced when they addressed the largest hustings meeting of their leadership election, hosted by The Independent.

Some 1,200 Liberal Democrat members and readers of the newspaper attended last night's packed event at the Friends Meeting House in Euston Road, London. The result of the ballot among the party's 73,000 members will be announced next Thursday.

Sir Menzies Campbell, the Liberal Democrats' acting leader and the early front-runner in the contest, hinted strongly that he would abandon the party's policy of imposing a 50p tax on incomes over £100,000 a year. Although he pledged support for properly-funded public services, he said there might be "other ways" of achieving that, adding: "You can't create a tax policy based on one tax rate."

Chris Huhne, the party's Treasury spokesman, said higher earners must pay more tax but refused to commit himself to keeping a 50p top rate. He suggested cutting tax relief on pension payments by top-rate taxpayers.

But Simon Hughes, the party's president, pledged his continuing support for a higher top rate. He said it was too early to say whether it should be 51p or 49p or bite on incomes of £100,000 or £150,000. But he said: "There should be a fair, progressive tax system. Yes, that means higher tax rates for higher earners."

Sir Menzies, who discarded his prepared speech to make a passionate appeal for the leader's job, hit back at sniping by his rivals over his position on the Iraq war as the party's foreign affairs spokesman.

Although critics have accused him of wanting the party to adopt a softer stance than Mr Kennedy, Sir Menzies declared: "I have never been more proud of this party than when every single Liberal Democrat MP went through the lobby together to vote against the war in Iraq."

However, he dismissed calls by Mr Hughes and Mr Huhne for the Government to set a deadline under which British forces would be pulled out of Iraq by the end of this year.

Rejecting an "arbitrary deadline", he said the complex and complicated issue of Iraq required "fine judgements". Targets should be set for a phased withdrawal. Sir Menzies said: "We must have a clear strategy for withdrawal - based not on an arbitrary deadline, but on achieving key milestones towards stability."

But Mr Hughes warned that the continuing presence of British troops was so damaging to Britain's reputation in the Arab world that the sooner they were pulled out, the better.

Mr Huhne accused Sir Menzies of pulling back from his previous statements that the presence of British troops was "part of the problem" in Iraq.

Mr Huhne, who began the race as an outsider but now threatens to run Sir Menzies close, said he could not understand why British servicemen were still stationed in Germany. That provoked a sharp rebuke from Sir Menzies, who accused his rival of winning cheap applause but said pulling out troops from Germany could fracture the Nato alliance.

Mr Hughes pledged he would not take the party to the right if he became leader. His opening speech was interrupted by heckling from two men who used to run a nightclub who accused the Liberal Democrat-led Southwark council of "racism" by driving black businesses out of the borough.

Mr Hughes apologised for misleading people about his sexuality after denying in an interview with The Independent that he was gay and later admitting he was bisexual. But he said he had never lied and argued that the controversy did not undermine his 30-year record in the party. He also claimed he would win the support of more voters than his two rival candidates.

Sir Menzies ended the 90-minute meeting with a withering put-down for Mr Hughes. The candidates were asked what they had learnt about each other during the leadership contest. After Mr Hughes extolled his own virtues as a better vote winner, Sir Menzies said he had learnt "modesty and humility " and had learnt from Mr Hughes "how not to answer the bloody question".

What they said

SIR MENZIES CAMPBELL

We need unity, certainly. But we also need clarity. I know what I stand for and I'm determined that the country knows too - a fair, green, democratic, decentralised Britain with an ethical foreign policy. First, a commitment to fairness and opportunity. Second, internationalism. Third, the environment - which is becoming increasingly urgent. Fourth, human rights and civil liberties. Fifth, I want to get rid of the dead hand of central government bureaucracy and bring power far closer to the people it affects.

CHRIS HUHNE

From Guantanamo Bay to the "Abolition of Parliament Act", Tony Blair and George Bush are destroying the foundations on which our societies are built. George Bush and Donald Rumsfeld will not listen when world leaders ask them to close Guantanamo but I expect our government to be more open to debate. Under the Legislative and Regulatory Reform Bill, the Government would be able to create a new offence under which any citizen can be imprisoned for up to two years without properly debating it in Parliament.

SIMON HUGHES

It is essential that we have a leader who continues to stand up for decent liberal values which are constantly under attack from the occupation of the middle ground by Tony Blair and David Cameron. We need a Liberal Democrat party that is totally and utterly opposed to the Iraq war, ID cards, tuition fees, the Religious Hatred Bill. We need a party leader who is principled and unafraid. We need, Britain needs, a party of principles and a sense of reason. That party is the Liberal Democrats and that I would be as leader.

How the candidates fared

HELEN WEBSTER, 33, Travel agent

I went in very open-minded and I was definitely inspired by them all in different ways. However I wasn't swayed particularly as I was equally impressed by all of them. Simon's tax policies stood out, but I haven't made up my mind. I will have to think more before I cast my vote.

NASSER BUTT, 47, Councillor

I deliberately didn't make up my mind before coming as I work for a group that puts information about the candidates together. All have strengths but Menzies seemed to show energy and is charged up, but Simon came over as more natural. Anybody could win.

JAMES ONALAJA, 24, Barrister

It seemed everyone had the same views. I was disappointed that no ideas were discussed. No one really provoked the candidates. All the policies were good Lib Dem policies. I am a Menzies man and he came out on top by discussing issues on Iraq, not just popular policies.

JENNA FEATHERSTONE, 22, Student

It wasn't a bad discussion. I'm a Chris supporter as I find his economic arguments credible because of his background. I was disappointed that Menzies out-joked Chris at the end but I'm still behind him as I feel that behavioural taxes are the way forward.