Budget 2013: Liam Fox urges spending freeze and tax cuts

Former cabinet minister Liam Fox has urged the government to freeze public spending for five years and use the savings to cut taxes and the deficit.

Stamp duty and taxes on bank account interest could be reduced to help create a "savings investment culture", the ex-defence secretary said.

He argued that no area of government spending must be ring-fenced from cuts.

But David Cameron said he was "never short of advice" and promised not to reduce the NHS budget to make savings.

Lib Dem Business Secretary Vince Cable said Mr Fox's plan represented a "jihad" against public spending.

Ahead of the Budget, Mr Fox is the latest of several senior figures among the coalition parties to question economic strategy, including Mr Cable, who has called for more investment in infrastructure projects to boost growth.

'Over-regulated'

Mr Fox's proposed freeze on all public spending - as against the current freeze for Whitehall departmental budgets - would cut spending in real terms by 2.5% a year. The current plan is for a 1% annual cut.

Mr Fox has calculated that his scheme would save £345bn which could be used to cut taxes, starting with the temporary abolition of capital gains tax, at the same time as reducing the deficit.

In a speech in central London, he said the UK was not sharing in global growth "because we are over-taxed, over-regulated and we spend and borrow too much. I believe that we should aim to freeze public spending for at least three years and probably more".

Mr Fox suggested the government could scrap taxation on cash savings in banks, which would "directly benefit pensioners... paving the way for the means testing of the winter fuel allowance and other benefits enjoyed by pensioners who have personal wealth that should leave them well clear of the safety net of the welfare state".

This would help many hit by low interest rates in recent years, he argued.

'Iniquity'

Access to housing benefit could be restricted for the under-25s, balanced by a stamp duty discount for those under the age of 30, Mr Fox said.

He called for a "savings investment culture" and an end to "the iniquity of the state taxing the same income on multiple occasions".

Mr Fox said that paying the interest on the national debt would be "the third biggest recipient of Whitehall funding" after welfare and health: "That is quite ridiculous but it is the inevitable consequence of a period of socialist rule".

Mr Fox urged an end to the ring-fencing of budgets for the NHS, schools and international development.

But, speaking on a visit to Milton Keynes, the prime minister said: "There are many good suggestions coming from many quarters. As prime minister I'm never short of advice."

He added: "But there is one piece of advice I won't take, That's the piece of advice saying 'You ought to cut the National Health Service budget'."

Mr Cameron said the government faced "difficult decisions" over departmental spending and it was "absolutely right that we have got a plan to get on top of our deficit".

'Be quiet'

However, on BBC Radio 4's Today programme, Mr Cable warned that serious damage would be done to industry if only certain government departments were subject to spending cuts.

He questioned whether areas such as health and international development should be protected, saying that he had gone along with 80% of spending being ring-fenced for this Parliament, but did not think it would be right "in the long term".

Mr Cable, who repeated his weekend call for more capital spending and for pensioners' benefits to be taxed, said he might back a Labour motion in favour of a "mansion tax" when it is debated in the Commons on Tuesday.

But he described Mr Fox's demands as a kind of "jihad" against public spending, saying: "I would simply say that there are certain forms of public expenditure - apprenticeships is a good example, science is another and university training is another - where government expenditure actually improves the economy.

"It doesn't drain the economy at all. It is actually necessary for our future growth and our future success."

'Kick-start'

In response, Mr Fox said Mr Cable's characterisation of his views was "not very constructive nor very accurate".

The Conservative MP's intervention comes at a time of growing unrest on the Conservative backbenches after the party's third position in the Eastleigh by-election, with speculation that some ministers are positioning themselves in the event of a future leadership contest.

But Mr Fox said there was "no chance" of a challenge to Mr Cameron's leadership before the next election - scheduled for 2015 - as such a move would be "absolute madness".

"I begin to wonder whether any of us can say anything about policy without it being interpreted by the media as something to do with a future, not yet declared, leadership election," he told BBC Radio 4's World at One programme.

Earlier Tory backbencher Eleanor Laing told BBC Radio 4's Today: "There are some people who are clearly positioning for what might happen after the next general election and there are some people who are openly talking about challenges to the leadership.

"They should all be quiet. They should all get their heads down and work together as one Conservative Party for the good of the country."

'Paying our way'

Chancellor George Osborne's Budget - his fourth - is just over a week away, on 20 March. Speaking in an interview at the at the World Economic Forum summit in Davos in January, he said deficit reduction was necessary to show the UK could "pay its way in the world".

Business groups have pressed him to take "radical" measures to boost economic growth and lift confidence across industry.

The CBI said the Budget should be fiscally neutral but said £2.2bn should be shifted from current spending to high-growth areas, including £1.25bn on building 50,000 affordable homes.

Director general John Cridland said: "The government must stick to its fiscal plan but now is the time to kick-start confidence."

The British Chambers of Commerce said it continued to support deficit reduction but it warned this might become impossible without sustained economic growth.