Tories gear up for election with backing for plans for £20bn tax cuts

Shadow Chancellor George Osborne today gave the strongest signal yet that the Tories will fight the next election with pledges to cut taxes on homes and business.

Mr Osborne stressed he would do nothing to put the stability of the economy at risk, but he praised proposals from policy chief John Redwood to slash more than £20 billion in tax.

Mr Osborne said that Mr Redwood had made a "powerful" case in an economic competitiveness policy report for axing inheritance tax on first homes and for cutting the rate of corporation tax from 30 to 25 per cent.

More people should also be moved out of top-rate income tax and stamp duty on shares and property should also be cut.

The deep cuts in tax would be balanced by slashing red tape and waste and the overall package would be revenue neutral, Mr Redwood claimed.

But Chancellor Alistair Darling attacked the Tory plans and insisted he was keeping inheritance tax thresholds "under review".

He said only six per cent of estates were liable to death duties.

"They are proposing £21 billion in tax cuts. The only way you can pay for that is by quite savage cuts in public spending," he told BBC Radio Five Live.

Mr Osborne singled out inheritance tax as a "tax on aspiration", pointing out that many ordinary people in London were hit by it.

Death duties of 40 per cent are payable on any assets above £285,000 - a figure that means average-priced London homes are now subject to it.

Mr Osborne added: "The irony is that the very rich do not pay inheritance tax as they use a lot of expensive advisers to avoid it.

"But the fairly average home-owning family are the ones who get caught.

"I've just got to make sure we can afford it, that it is consistent with economic stability.

"We are looking closely at reform on inheritance and capital gains tax."

Mr Redwood argued that cutting capital taxes and business taxes was the "way to go" to raise more money for public services.

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"Labour have made this absurd claim that any tax reduction, any reduction in rate, would mean worse public services," he said.

"We simply don't believe that. The Irish experience shows the opposite is true.

"We're introducing the subject relatively gently in the modest proposals we have come up with."

He said the Tories would share the proceeds of economic growth, which he claimed would pay for both tax cuts and boost public services.

Tax cuts could also be balanced by higher green taxes and ending Labour's expensive ID cards scheme.

The Chancellor claimed the Tory proposals proved that leader David Cameron was being forced by his MPs to abandon the centre ground.

Mr Cameron is going through the worst period of his leadership, lagging behind Gordon Brown in the opinion polls and coming under fire from his party over grammar schools.

Mr Osborne stressed the Tories were not afraid of a snap poll. "Whether there is a general election this October or in three years, we will be ready for it."