Tories target Middle Britain with tax pledges

Tax moved to the centre of the political battleground yesterday after the Conservative Party promised that only millionaires would pay inheritance tax if it wins the next general election.

In an attempt to halt Gordon Brown's drive to woo Middle Britain, the Tories pledged to raise the threshold for inheritance tax from £300,000 to £1m, a move that would lift almost nine million people out of the tax. The homes of 98 per cent of families would be exempt.

George Osborne, the shadow Chancellor, won an ecstatic response from the Tory conference in Blackpool when he announced the proposal. He also promised to abolish stamp duty for nine out of 10 first-time buyers by increasing the threshold to £250,000.

The £3.5bn-a-year cost of the two tax cuts would be met by imposing a £25,000-a-year levy on the 150,000 UK residents who claim non-domicile status to avoid paying tax on money earned abroad on the ground that the UK is not their real home.

Mr Osborne said: "We will take 10 million people out of these taxes on aspiration. We will simplify the tax affairs of millions. For millions of people, today sounds the death knell of the death tax."

It appears that the populist measures were rushed out in a frantic attempt to narrow Labour's lead in the opinion polls and deter Mr Brown from calling an immediate election. Mr Osborne also promised the Tories would unveil plans to cut personal and business taxes before the election. In his conference speech tomorrow, David Cameron will pledge tax advantages for married couples, possibly through transferable tax allowances to help mothers who stay at home to bring up children.

But the Tory plans were questioned by Labour and independent experts last night. Alistair Darling, the Chancellor, said Treasury figures showed the levy on non-domiciles would raise a maximum of £650m, leaving the Tories at least £2.9bn short."Their sums simply do not add up," he said. "There is a gaping black hole at the heart of their tax and spending plans."

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said some of the non-domiciles might choose to move abroad to avoid the charge; might not locate themselves in the UK as a result or might decide not to take up non-domicile status. "There is much more risk over the money they are planning to bring in than the money they are planning to give out," he said.

The Tories accused Labour of underestimating the number of non-domiciles and said Treasury figures showed the vast majority of them would choose to pay £25,000 rather than bring all their foreign income onshore.

But Tory tensions over tax surfaced when right-wingers expressed fears that the cuts were "too little, too late". John Redwood, the former cabinet minister, said on his website that yesterday's announcements were "moves in the right direction" but called for an amendment to the Treasury's economic model to show how much extra revenue would be raised by cutting taxes for business and higher earners. He was echoing Baroness Thatcher, who said recently: "You can't have stability without tax cuts."

Mr Osborne told the conference: "We will always put stability first.I want lower taxes. I want simpler taxes too. I believe lower, simpler taxes are vital for Britain to compete. I will approach each Budget seeking ways, consistent with sound finances and economic stability, to reduce taxes and businesses and families striving for a better life."

He added: "It is a mark of our seriousness about lower taxes that I will not promise unfunded, undeliverable tax giveaways to dress up a press conference in an autumn election campaign. For this party, lower taxes aren't just for Christmas. They are for life."