Lib Dems reveal 4p tax cut plan

The £19.2 billion tax cut would reduce the rate to 16p - the lowest since 1916 when Britain's last Liberal Prime Minister was in 10 Downing Street.

Party leader Sir Menzies Campbell said his proposed system was "fair, simple and green" and would benefit "the vast majority" of families.

It would be paid for by a big hike in green levies on cars and flights and axing £13.5 billion of tax breaks enjoyed by high earners on pension contributions and selling assets.

Sir Menzies survived an early test of his leadership last year when he faced a revolt over ditching the party's long-held policy of a 50p income tax rate for high earners.

But the package of reforms approved in that vote last September has had to be revamped in the wake of Gordon Brown's surprise 2p income tax cut in his final Budget as Chancellor.

Plans to take millions of low earners out of income tax altogether by scrapping the 10p lower rate have been dropped after Mr Brown moved them into the new 20p basic rate band.

Instead the money would be spent on the 4p cut.

The party also wants to reduce the stamp duty bill for all home sales under £500,000 and raise the threshold for paying inheritance tax to the same sum.

And it is sticking with plans to replace the council tax with a local income tax.