Liberal Democrats will hike capital gains tax on profits from the sale of shares and second homes to help fund a £100 income tax break for 29 million workers if they remain in Government after May's general election, Nick Clegg has announced.
Mr Clegg said that the Lib Dems would increase the personal allowance threshold, below which no income tax is payable, to £11,000 by April 2016, as a first step towards the party's long-standing goal of increasing it to £12,500. He said David Cameron had "plagiarised" the Lib Dems' plans in his conference speech last week, but had failed to explain how he would pay for his "moon on a stick" promises.
Mr Clegg accused the Tories of planning to "penalise the working-age poor" with welfare cuts, while rewarding the well-off with much larger income tax breaks through their proposed increase in the threshold for the higher 40p rate. "Liberal Democrats believe in opportunity for everyone, not just a few at the top, and letting you keep more of your own money is central to that," Mr Clegg said. "We have cut your taxes in this Parliament and we will continue doing just that in the next.
"It's easy to promise a tax cut, it's much more difficult, especially in the current economic situation, to say who pays. We are clear that we will pay for this tax cut for millions of working people by asking wealthier people to contribute more. This is about priorities. The Conservatives may have copied our flagship policy but they would pay for it in a deeply unfair way - by hitting the working poor.
"And the Conservatives want to cut taxes for the better-off by nearly five times as much. The difference between the Liberal Democrats and the Conservatives is that we want to cut taxes for working people, paid for by the wealthiest, they want to cut taxes for the wealthiest, paid for by the working poor."
Lib Dems would fund the £1.5 billion tax cut by increasing capital gains tax - currently levied at 28% - to a "similar" rate to income tax, cutting CGT exemptions from £10,000 to £2,500 and clamping down on tax avoidance. Aides later suggested that the new rate of CGT, to be set in the autumn of 2015, could be between 35%-40%.
Once the personal allowance has hit £12,500, the party's tax priority would be to increase National Insurance thresholds to the same level. In a round of broadcast interviews at the Lib Dem conference in Glasgow, Mr Clegg said that the conference season had thrown a spotlight on the contrasting visions of the three main parties.
"At the moment, we've got this interesting choice opening up between one leader, Ed Miliband, who famously forgot to talk about the deficit and has never apologised for being part of a government that crashed the economy in the first place, and a Conservative Party leadership - and you heard it from George Osborne last week - now saying quite deliberately and openly that the Conservative Party want to make the working-age poor pick up the tab for the mistakes made by the bankers in the past," he said. "It's such an unappetising choice."
Mr Clegg said internal party critic Jeremy Browne was "talking out of the back of his head" when he said the conference slogan Stronger Economy. Fairer Society implied the Lib Dems could only hope to mitigate the excesses of other parties rather than pursue their own vision.
"What the Liberal Democrats are saying is that we don't have to have this dismal choice between Ed Miliband saying he is going to take the economy backwards or the Conservatives saying they are going to divide society," said the Deputy Prime Minister.
"We can create both a strong economy and a fair society, so that everybody has the opportunity to get ahead. I think it's a message which I hope will start to be heard." He refused to be drawn on what "red lines" he would demand in any coalition negotiations after an inconclusive election.
But he vowed to block any Tory move to leave the European Convention on Human Rights and saw Labour's refusal to match the coalition's pledge to eliminate the deficit by 2018 as "a major, major problem" in the way of a deal. Mr Clegg said that he had secured rises in the income tax allowance from £6,500 in 2010 to £10,500 next April against fierce resistance from Mr Cameron and Mr Osborne, who were now claiming credit for the change but at the time preferred "kooky" alternatives like inheritance tax cuts, marriage tax breaks and reliefs for giving up workplace rights.
"I had to fight tooth and nail against David Cameron and George Osborne, who kept saying to me privately 'This is your tax cut. If you want this Nick, you are going to have to do this, that or the other'," he said. "If they hadn't done any of those things, we probably could have got to £12,500 by now, but they kept wasting money, frittering money away, on this endless mixed menu of different and I thought rather unfair tax priorities they had. We've remained pretty consistent."
Mr Clegg said he regarded it as a "huge political error" for Mr Osborne to announce "economically unsustainable and socially unjust" cuts to working-age benefits as well as further reductions in public spending which would "savage" schools, police and care services, at the same time as Mr Cameron offered tax cuts to the better-off.
Despite opinion polls showing the Lib Dems trailing on as little as 6% just seven months from the election, Mr Clegg said he believed that "as people come to focus on how they will vote we will get more of a hearing and we will return many more MPs than many of the sceptics and pollsters currently predict".
Rather than "dwelling on" the party's U-turn on tuition fees, he said he hoped voters would give them credit for their successes in office.
A Labour spokesman said: "You can't trust a word Nick Clegg and the Lib Dems say. Their record in Government on tax is breaking their promise not to raise VAT and backing the Tories' tax cut for millionaires."