Danny Alexander: We did the right thing, says defensive axeman

Politicians always say they take no notice of opinion polls. This is always rubbish. But Danny Alexander is adamant that even the recent Liberal Democrat collapse to just 10 points will not make him flinch from wielding the axe on public spending – and hundreds of thousands of jobs.

"Britain has been really let down in the past by governments spending all of their time looking over their shoulder... tacking and weaving, depending on what the latest poll or headline said. We are not going to do that," the Chief Secretary to the Treasury says. "We have a plan. We are going to stick to it."

Even if this means a hammering for his party at the next election? "Doing the right thing for the country is the most important thing," he adds, although he maintains that come polling day in 2015, the Lib Dems will be able to "to look people in the eye" and say they delivered on key pledges, including the pupil premium, a greener economy and political reform.

Other policies have been less lucky. Mr Alexander, like many Lib Dems, signed the National Union of Students' pledge to "vote against any increase in fees in the next parliament". Now the coalition is ready to adopt a plan that sees the cost of a university place soar, with Mr Alexander admitting his policy to "scrap unfair" fees was "unaffordable".

So much for the new politics of being straight with people. The Lib Dems also attacked Labour's record on civil liberties, and pledged to scrap a database storing details of every email, web visit and phone call. Last week the coalition revived it. Mr Alexander becomes defensive, refusing to comment on the proposal while insisting it "is consistent with the approach that Liberal Democrats have taken to these matters".

Despite David Cameron's famous "read my lips" pledge to protect benefits for the elderly, Mr Alexander reveals he did look at scaling back the £250 winter fuel allowance to only those on pension credit, but found 1.6m poor pensioners would miss out.

Mr Alexander is critical of Ed Miliband and Alan Johnson as "decent guys" who do not have a plan for the economy. "Until Labour stands up and says sorry... people will not take them seriously on the economy."

But he is strident in defending the Tories from the claim that they see cuts as a route to a smaller state. "I genuinely have not had a sense from anybody that this is an ideological thing. We didn't come into politics to do this but we have an unavoidable problem that we are stepping up to the plate and dealing with." The image of Tory MPs cheering and waving order papers as George Osborne spelt out mass redundancies will linger, though. He believes it is a "very good thing" that his party is in power rather than the Tories going it alone.

"Of course, I was very clear in my mind throughout the whole process that every single number on every single page, that every single decision we have made, affects somebody. That it is somebody's job; it is a service that people rely on."

He reveals that as final settlements were reached last weekend, an extra £1bn surfaced that allowed science spending to be maintained and ensured "proper funding" for the Green Investment Bank.

He denies the charge from the Institute for Fiscal Studies (IFS) that the poorest will be hardest hit, though the claim to fairness depends in part on the coalition implementing Labour's tax and national insurance rises. The IFS assessment was "partial" because it ignored extra school funding and free nursery places for the poorest two-year-olds, he adds.

He says he has a "big job" to explain to the country why he has taken the decisions he has, but he believes the public "respect" the coalition for having a plan to tackle the deficit."This is something I have been working on for the last five months, but for most people in the country it starts now."

Taxing ideas: Ten ways to make Britain a fairer place

1. Wealth tax

Either a one-off or an annual levy. The French "solidarity" tax, levied on assets over €790,000 (£700,000), raises €4.5bn (£4bn) a year. The case against is partly that the burden would tend to fall on the middling rich, as the best-advised move assets abroad and use trust law. Variants include a mansion tax on homes worth more than £2m, as proposed by Vince Cable and David Miliband, or charging capital gains tax on the sale of the main home, raising huge sums.

2. 60p top rate of income tax

Our ComRes poll last week found 54 per cent support for raising the top rate of income tax, on earnings above £150,000 a year, from 50p in the pound to 60p. It wouldn't raise much. The sainted Institute for Fiscal Studies says "there is little scope for more revenue to be raised by increasing this rate" as the rich defer income or convert it into capital gain. Maybe, but the scope for sending a powerful signal about the highest paid, including the recipients of large cash bonuses, being "in this together" is considerable.

3. Abolish non-dom status

America doesn't tolerate it: if you are a US citizen or work there, you pay tax there. Labour brought in a flat £30,000 annual fee payable by the 120,000 non-doms, but why do we need this curious status at all? The highly mobile international elite seems to quite like living in New York, Paris and elsewhere. Again, not much net revenue would be raised, because some would probably move.

4. The Sir Philip Green device

Sir Philip, boss of Topshop and government adviser on waste, holds almost all his assets in his wife's name. She is resident in Monaco and pays no UK taxes. Would it be possible or desirable to reverse the independent taxation of married couples and to renegotiate the tax treaty with Monaco? Has anyone even tried? Again, the net benefit to the Exchequer is small, but the index once proposed by David Cameron of National Well-Being would rise.

5. Robin Hood tax on banks

The coalition is imposing a bank levy next year that will raise £2.5bn a year. To raise more would preferably mean negotiating a global agreement so that all countries did it. Tricky. But Alan Johnson, the Shadow Chancellor, last week argued that another £3.5bn could easily be raised from the banks without driving them out of the country.

6. Raise tax on betting

If financial transactions were taxed, it is argued, speculators will simply move into the betting markets. The betting tax has been replaced by a tax on bookmakers, but is not collected from internet bookies based overseas. This is a loophole that could be closed. It would raise millions – chicken feed in deficit terms but important in blocking off another form of tax avoidance.

7. Tax universal benefits

Free eye tests, free prescription charges, free bus passes, free TV licences for the over-75s and winter fuel payments for pensioners could all be subject to income tax, although that would mean breaking Mr Cameron's election promises. Taxing these benefits would raise less than £1bn, but would again be a symbol of fairness.

8. Tackle tax havens

Large companies continue to minimise their tax bills by basing operations in holiday resorts. Can it really be so difficult to make that harder for them?

9. VAT at 25 per cent on luxury goods

From 1975 to 1979 there was a 25 per cent rate of VAT on "luxuries", including white goods, jewellery and furs. Now, 25 per cent happens to be the maximum allowed under EU rules. It could apply to yachts, fur, patio heaters, 4x4s and football clubs. If a 10th by value of all currently VAT-chargeable goods and services were classified as luxuries, it would raise £2.5bn a year.

10. Abolish pension contribution relief at higher rates

This old Liberal Democrat policy is being partially enacted by the coalition – limiting the benefit to £50,000 a year from next year and to a pension fund total of £1.5m from 2012. But the relief could be restricted to the basic rate of income tax for all. This would hit the well-off but not the richest, between the 40p tax threshold at £44,000 a year and the 50p rate at £150,000 a year. This would raise about £1.5bn a year.

John Rentoul