The Tories have set out to establish themselves as the party of lower tax by announcing plans to end tax on savings for all those earning less than £32,785. The party would abolish tax on all income from bank, building society and other savings accounts, as well as income from dividends, for all lower or basic rate tax payers.

Michael Portillo called the plans the "most radical change to the taxation of savings in a generation". He added that if the Conservatives won the election the change would come in to effect in the 2003-04 financial year. The plans were estimated to cost £3 billion.

Chancellor Gordon Brown, who relaunched the child tax credit yesterday, hinted that its value could be increased from £8.50 a week to £10. He also appeared to rule out across-the-board income tax cuts, saying he would do nothing to put at risk economic stability or investment in public services.