Lib Dems hope to woo Labour voters by taxing the rich

The Liberal Democrats are planning to fight the next election on a high-tax manifesto. They hope to pick up support from disenchanted Labour supporters angry at the party's refusal to fund increased public-service spending from higher taxation.

The Liberal Democrats are planning to fight the next election on a high-tax manifesto. They hope to pick up support from disenchanted Labour supporters angry at the party's refusal to fund increased public-service spending from higher taxation.

The manifesto will contain a commitment to raise the top rate of tax by 10p in the pound to 50p for all those earning £100,000 a year or more. It will be coupled with reforms of National Insurance contributions that could mean tax increases for those with salaries as low as the average earned income of £15,600 a year.

The Lib Dems know that by making the pledge they will create divisions within Labour. Many Labour MPs and grassroots activists believe that the public is now ready for a more radical commitment by Labour to raise taxes on the rich to improve public services over the next term of office.

The Lib Dem Treasury spokesman, Matthew Taylor, has borrowed the idea of a supertax on the rich from his party's last election manifesto, but he wants to see higher taxes on middle- to high-income earners in return for tax cuts for the poorest.

A source close to Mr Taylor said: "If you can say how the money is going to be spent and you reduce the 10p starting rate of tax, everyone is going to gain apart from the rich. That would be a very popular tax change. We would do it as part of a package which would lower it for those on low incomes but raise it for the average and above average earners." Charles Kennedy's unabashed support for higher taxation is certain to embarrass Mr Blair, who forced Gordon Brown to drop a similar plan before Labour came to power.

The supertax policy will be included in a pre-manifesto package of measures to be unveiled next week - before this month's Lib Dem annual conference in Bournemouth - by party leader Mr Kennedy as part of a "freedom" agenda. In a foreword to the agenda, he says: "I want to see social justice in Britain. That means a massive attack on poverty."

Increasing taxes for those on average earnings will be a high-risk policy for the party, but the Lib Dem source said Mr Taylor believed there would be support for the plan, providing the tax system was properly explained. Treasury figures issued to Mr Taylor show that 40 per cent of the incomes of the lowest earners go in tax, compared with only 36 per cent of the incomes of the highest earners.

The Lib Dems also want to abolish NICs as a contributory system so that anyone over the qualifying age would be entitled to a state pension.

Treasury figures given to Mr Taylor show that a 50p higher rate of tax for those earning £100,000 or more would raise £2.9bn for the Exchequer. The Lib Dems want to abolish the 10p lower rate of tax and extend the personal income tax allowances over this range, but that would cost £4.6bn.