Tory tax cuts 'must be paid for'

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As the party set out proposals for easing the burden of tax and regulation on business, Mr Osborne said that any tax reductions would have to be paid for by tax increases elsewhere such as new environmental levies.

The economic competitiveness review headed by former cabinet minister John Redwood called for a series of sweeping tax reductions including abolishing inheritance tax, reducing corporation and capital gains taxes, abolishing stamp duty on share deals and raising the threshold for the higher rate of income tax.

The report also recommends the sweeping away of £14 billion worth of regulation on business and a "surge" in investment on transport, energy and higher education.

At the report's launch in London, Mr Redwood said that reducing the tax burden was the best way to stimulate economic growth and increase overall prosperity.

"We believe a lower tax economy would be a more successful economy. If you have the courage to cut the rates, the rich pay more," he said.

Mr Osborne described the report as "the most impressive and comprehensive analysis of the state of the British economy produced by any political party in recent times."

But while he said that he would look "very carefully" at the proposals he said that there could be no commitment to specific tax cuts unless they could be fully afforded.

While the report calls for the abolition of inheritance tax, it also recommends that estates should be liable for a simplified form of capital gains tax although the first home and assets held for longer than ten years would be exempt.

Mr Osborne said that this was one of a "range of options" which he was looking at. Other alternatives could involve reducing the rate of inheritance tax or raising the threshold at which it becomes payable.