Osborne sees off Tory demands for tax cuts

George Osborne, the shadow Chancellor, has faced down demands from Tory right-wingers for a tax cutting platform at the next general election.

In a keynote speech, he argued that the Opposition must stick to David Cameron's policy of matching Labour's spending limits to head off Gordon Brown's claims that the Tories would cut public services.

But Mr Osborne kept the door open to reviewing the policy next year in a move designed to placate right-wingers, among whom there is a growing clamour for a radical tax-cutting agenda. That would allow the Conservatives to change their line on tax if Mr Brown delays the election until 2010.

In the short term, he argued, it would be wrong to "head off on to the margins of the political debate and reduce spending growth even further for the sake of a short-term argument".

Dismissing right-wing calls for a clearer "dividing line" between the Tories and Labour on tax, he said: "Gordon Brown believes in the politics of dividing lines. I've seen where it has got him: the most unsuccessful start of a premiership in modern British history."

Mr Osborne shared the "frustration" of Tories that borrowing is high, taxes are at record levels and government has grown so large, but warned that there was "no credible quick-fix solution".

He added: "Many Conservatives understand that the pressures on public spending from defence, law and order, education and health care are only likely to increase. So the right solution is to reform public services, improve their productivity and stick to sustainable spending plans over an economic cycle."

Mr Osborne argued that a smaller rise in spending would probably be unachievable in a slowdown, when tax revenues fall and the welfare budget rises. Tory sources said he would stick to plans for tax breaks for married couples and a £1m threshold for inheritance tax and hoped to pledge lower taxes for business.

The shadow Chancellor said the Conservatives would stick to such a long-term approach based on their existing spending commitments. "We will create a real and sustainable path to lower taxes and sound public finances, and we will combine it with a programme of lasting tax reform that gives Britain the tax system it needs to meet the long-term challenges of our age," he said.