Tories launch tax attack with vow to slash Government spending

Nearly 1.5 million workers in Yorkshire and the Humber would be up to 150 a year better off and no one would fare worse under the Tory plans and seven out of 10 workers across the country would benefit, the party claimed.

Shadow Chancellor George Osborne branded Labour's planned National Insurance rise – due to come into force next April, when the recovery is still expected to be slow, and estimated by businesses to cost the region's economy 340m a year – "the economics of the madhouse" and insisted that cutting waste this year would allow the Budget deficit to be reduced.

But he was accused of "panicking" by Labour in the wake of recent closing of the polls while the Liberal Democrats said he was turning to "schoolboy economics", as the party's three Treasury spokesmen went head-to-head in a televised debate last night. Alistair Darling and George Osborne traded blows over how to tackle the deficit last night in the first ever "Chancellors' debate".

Mr Darling used his opening statement to attack Tory plans for immediate spending cuts, warning that "premature" reductions risked "tipping us back into recession". But his Conservative shadow insisted that people knew from their own experience that the "sooner you deal with a debt problem, the better".

While businesses backed the move on National Insurance, some also warned that the Tory proposals for finding efficiencies are just as vague of Labour's sketchy plan for 11 billion of savings unveiled by Whitehall departments last week. The British Chambers of Commerce want the entire National Insurance increase scrapped, paid for by a one per cent VAT rise.

The respected Institute for Fiscal Studies also warned the Tories would take money out of the economy when the recovery was "at its most fragile" and the tax cut would lead to wider spending cuts later.

Mr Osborne said a study produced for the Tories by Sir Peter Gershon and Dr Martin Read – who have formerly advised the Government on cutting waste – had found 12 billion in savings, apparently without hitting front-line services.

Half of it comes from the health and overseas development budgets – which the Tories have pledged to protect, so will reinvest savings – or defence, which the Tories have put off any decisions until after a strategic defence review.

The other 6 billion will be used to pay off a chunk of the deficit this year, then will more than cover the 1p National Insurance increase planned for April – which would hit anyone earning over 20,000 – to be rolled back.

Anyone earning between 7,100 and 45,400 would benefit under the plans to raise the threshold at which people start paying contributions by 24 a week, and raising the upper earnings limit by 29 a week. The cost of Labour's tax rise on employers will also be reduced by more than half by raising their threshold.

The Tories have long highlighted the national insurance increase as their top priority to tackle amid concern it will hit businesses at a time when they need help to create jobs and drive the recovery.

But Liberal Democrat Treasury spokesman Vince Cable said: "This is schoolboy economics. When you have a 70 billion permanent hole in the Government's finances you simply can't propose cutting tax revenue unless you spell out exactly how you are going to pay for it."

The president of Yorkshire and Humber Chambers of Commerce, Richard Wightman, added: "Raising the cost of employing people at the time we want Yorkshire businesses to be creating jobs is the wrong tax at the wrong time.

"Businesses will therefore cautiously welcome today's announcement but we want the politicians to go further by scrapping the tax hike on employers altogether."

How they say they can save 6bn this year

Stopping any major new spending on IT projects, and cancel existing projects deemed not worth completing. IT spending is now 16 billion per year, but experts recommend focusing on better management rather than more IT.

Negotiating "significant reductions" from major suppliers, following the example of the private sector where businesses have struck revised deals because of the impact of the recession. Advisers say the savings would be "very large"

Not filling some vacancies which come up in the public sector.

Controlling discretionary spending, such as travel, expenses, consultancy and IT costs. Advisers say that private firms have been doing it throughout the recession, and now the public sector should follow suit to cut one per cent off costs within months.

Reducing public sector property costs.