Tories pledge to scrap some savings tax

The Conservatives yesterday called for taxes on savings to be scrapped for those with low incomes in the party's opening salvo of the New Year in its bid to show voters it can help them in an economic downturn.

The government has accused the Conservatives of having a "do nothing" attitude to recession and concerns over the Conservatives' ability to handle the economy have slashed the opposition's lead in opinion polls to just a few points.

The Conservatives enjoyed a more than 20 point lead over Labour over the summer - which would have handed them an easy victory in a general election due by the middle of next year - but the slide in opinion polls means the outcome is now too close to call.

"Labour can't hang on forever. Change is going to come - I hope it's sooner rather than later - but change is going to come," Conservative leader said yesterday.

He called for the government to abolish the 20 per cent tax on savings accounts paid by people on the basic rate of taxation. Higher earners would continue to pay up to 40 per cent on their savings income.

Mr Cameron also called for a rise of £2,000 a year in the tax threshold for pensioners.

It was not immediately clear how much the move would cost, although newspapers estimate a tax cut on all savings income would hit government revenues by £2.4 billion a year.

Mr Cameron said the changes could be paid for by reducing government spending in the next financial year.

"A culture of thrift at the heart of government, and a culture of saving at the heart of our economy - these changes will provide strong foundations for the new economy we plan to build," he said.

Savers have seen their income fall in recent months with some banks offering rates as low as 0.1 per cent. The Bank of England has cut interest rates sharply in the face of the economic downturn and markets expect a further cut this week to 1.25 per cent from two per cent.

While that is good news for homeowners with mortgages it means further hardship for savers, particularly retired people dependent on savings income to top up their pensions.