Nick Clegg to raise capital gains tax to fund help for low earners

Investors face higher capital gains tax to pay for tax cuts for lower-paid workers, Nick Clegg declared today as he intensified his battle with David Cameron over election tax cuts.

He carved out a gap between the Coalition partners by saying that he would make the rich pay for tax cuts, accusing the Tories of targeting the “working poor”.

Mr Clegg’s plans will be mapped out in his keynote conference speech tomorrow where he will fight to seize back credit for the flagship policy of raising the tax-free personal allowance to £12,500, which will lift a million more people out of income tax.

A Cabinet ally of Mr Clegg today admitted that voters have “fallen out of love” with the Deputy Prime Minister. Ed Davey, the energy secretary, said: “I don’t think we’re going to see the repeat of the last election — where you in the media had what you called ‘Cleggmania’ when everyone fell in love with Nick Clegg — because we had to go into coalition with the Conservatives. People have fallen out of love with Nick Clegg, that’s what the opinion polls show.”

However, he added: “I think nearer to the election when people look at what he’s delivered and what the Liberal Democrats have delivered, he’ll get respect.

“I think we’ll move from the ‘Cleggmania’ of the last election to ‘Clegg-respect’.”

Getting plaudits from voters for tax cuts is key to the Lib-Dem election campaign. Aides to Mr Clegg say Mr Cameron “shamelessly copied” their tax cuts policy for the Tory manifesto.

But the Lib-Dem leader aims to woo voters by saying he would do it faster and more fairly. In his speech he will say he would put up the tax-free allowance to £11,000 in 2016 as an early down-payment worth £100 each to people on lower incomes and pensions.

Some £500 million of the cost would be paid for by raising capital gains tax from the current spread of 18 to 28 per cent to a new rate, probably 35 per cent.

In addition the tax-free relief on capital gains, currently for the first £10,900 a year, would be cut to £2,500, bringing in £250 million to the Exchequer.

The rest of the tax cut would be paid for by a crackdown on tax avoidance.

A party source said: “The Tories shamelessly copied our flagship policy. But they would slash benefits for the working poor, giving with one hand and taking with the other. By contrast we will be crystal clear that we will ask for a greater contribution from the wealthiest.”