Cameron: Scrap basic savings tax

By Alex Stevenson and Ian Dunt

David Cameron has called for an end to the basic rate of tax on savings, in a speech on the economy this afternoon.

He also said pensioners’ tax free allowance should be raised by £2,000.

The Tory leader claimed to be opening a “new front” in the economic argument with Labour.

He said politicians must be “doing everything we can now to help victims of Gordon Brown’s recession but in a way that helps our economy in the future”.

He announced reports for consultation on green tech incubators and the green environmental market as well as a full-scale review of the creative industries.

The review will give priority to increasing broadband speed in the UK, which the Tory leader said is among the slowest in the developed world.

“The longer Labour are in, the worse it gets,” Mr Cameron said.

“Gordon Brown’s policies for the recession are not working. The recession is getting worse not better.”

Under the Conservative plans all though earning up to £34,800 – in the current tax year – will not pay tax on savings.

Top rate taxpayers would continue to pay the same.

The Tories claim the maximum gain – for those depending on savings income – would just over £7,200 a year.

The party estimates someone earning £800 a year from savings would be £160 a year better off.

On an account paying three per cent interest, they would have to have around £26,000 saved.

The tax allowance for pensioners – the amount of income they do not pay tax on – would increase by £2,000 to £11,030 for the current tax year.

The cost to the Treasury of the removal of tax on savings would be £2.6 billion, while the price of the increase in tax allowances for pensioners would cost £1.5 billion.

The Conservatives claim this will be paid for by cutting government spending and not tax increases elsewhere.

Yvette Cooper, chief secretary to the Treasury, said Mr Cameron offered only empty promises.

“David Cameron is making empty promises to hide the fact that the Conservatives would do nothing to help the British economy, and once again would turn their backs on the British people in difficult times,” she said.

“The cruelest of his empty promises is a loans scheme to business when he also rules out providing the money to fund it.”

Mr Cameron also described the government’s 2.5 per cent VAT cut as a “criminal waste of money”.

Speaking on the Today programme earlier, he said the government “may as well have gone out and burned the money” when assessing the impact of the reduction in VAT from 17.5 per cent to 15 per cent.

This will continue for a 13-month period until the end of the year but ministers are already downplaying its significance, Mr Cameron claimed, suggesting even the prime minister feels it is not making a real difference.

“The 2.5 per cent cut in VAT was a complete joke,” he said.

“I feel like shaking the prime minister sometimes and saying, ‘look, what don’t you get?’ It’s a credit crunch. That’s what needs to be addressed. Stop wasting our money cutting VAT. and get with the programme.”

Liberal Democrat leader Nick Clegg had several objections to the Tory plans.

“If David Cameron is going to be taken seriously he has to identify what cuts he will make. How many fewer police officers will there be on the street and who will have a smaller pension?” he asked.