Tory 'tax bribe' launches election - but can UK afford it?

David Cameron dropped a tax cut bombshell on Ed Miliband and the Labour Party today by announcing that millions of middle income workers will be lifted out of the 40p upper rate of income tax and one million low-paid workers will escape income tax altogether if the Conservatives are re-elected next May.

The Prime Minister promised that during the next Parliament, the threshold for the 40p rate of income tax will be raised from its current level of £41,900 to £50,000. It will amount to a massive tax break for teachers and police officers who have been dragged into the higher rate of tax, he said.

He also announced that the starting rate of income tax for the low-paid, including those on the minimum wage, will be lifted from £10,500 (the rate as of next April) to £12,500 during the next five-year term.

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"That will take one million more of the lowest paid workers out of income tax and give a tax cut to 30 million more," Cameron told the Conservative Party conference in Birmingham. "If you work 30 hours a week on the minimum wage, you will pay no income tax at all - nothing, zero, zilch."

Together, the two tax breaks amount to a huge pre-election bribe, which the Tory high command is calculating could be enough to turn around the opinion polls and close the gap with Labour.

However, the tax breaks will have to wait until 2018 at the earliest, after a full two years of further austerity – in the shape of welfare cuts and other spending curbs amounting to £25bn a year – outlined by Chancellor George Osborne earlier in the week.

But the sheer cost of the "bribe", with the national deficit close to £100 billion, is already raising eyebrows and is bound to bring strong condemnation from the Labour Party. They will argue that millions of working families will have to pay for these tax cuts through reduced welfare benefits.

Within minutes of Cameron leaving the hall after his keynote speech, Tory Chief Whip Michael Gove was asked on the BBC's Daily Politics show how much these tax breaks would cost. Gove said he'd been told the new £12,500 threshold would cost £5 billion. "Wrong," said the show's host, Andrew Neil. It was nearer £8 billion, according to the BBC's number crunchers.

As for the 40p rate change, that would cost about £2 billion, said Gove. Wrong again, responded Neil - £3.5 billion was more like it.

Expect this squabble to continue and grow louder in the coming days, with Labour accusing the Tories of making reckless promises.

Cameron’s speech was intended to offer some hope to voters after the grim austerity message delivered by Osborne and it shows that the Tories are desperate to win back the support of Middle England voters. By reaching for the tax weapon, Cameron is using a device that helped Margaret Thatcher win three successive terms of office.

It was also intended to re-establish the Tories’ credentials as a tax-cutting party for the many and not, as Labour has effectively nailed them, for the wealthy few. It will go some way to answering Labour’s charge that the Tory rich boys have only helped out their rich friends by cutting the higher rate of tax from 50p in the pound to 45p.

Its potency was limited under John Major. But with falling living standards Cameron and his strategists, including election guru Lynton Crosby, clearly believe it will have a devastating impact on Labour’s continued lead in the opinion polls. It will be tested in the upcoming by-elections on 9 October in Clacton and the Greater Manchester seat of Heywood and Middleton.

The Prime Minister’s speech ended a surprisingly upbeat conference given the bad start following the defection to Ukip of MP Mark Reckless and the sexting scandal involving junior minister Brooks Newmark.

Cameron made a renewed pledge to hold an in–out referendum on Britain’s membership of the EU and promised that the Tories would scrap the Human Rights Act which is hated by traditional Tories, and introduce a British bill of rights to replace it.

And with the Ukip threat hovering over this conference, he warned would-be defectors: "If you vote for Ukip, that is a vote for Labour - on the 7th of May you could go to bed with Nigel Farage and wake up with Ed Miliband."