Kennedy says Lib Dems will keep local income tax policy

The Liberal Democrat leader, Charles Kennedy, today pledged his party would stick to its plan to replace the council tax with a local income tax, saying the policy had "tested positively" during the general election.

The party, which returned its largest number of MPs since the 1920s in the election, yesterday began a root and branch review of its taxation policies.

But despite concerns from the party president, Simon Hughes, that the policy had not come across clearly during the campaign, Mr Kennedy today said it would remain.

He told the BBC: "We will be sticking to the local income tax.

"You can always look at any policy, particularly one that you've tested, and it has tested positively during a general election.

"There was one opinion poll showing seven out of ten in support for the basic proposition we were putting forward and we were the only party with something new to say on the issue.

"So we shouldn't be resiling from that, and we certainly won't be."

Mr Kennedy was famously caught stumbling by TV cameras over the detail of the policy at an early morning election press conference shortly after his son Donald was born.

According to the party, a local income tax at around 3.75% would leave nearly all pensioner households better off. Their calculations predict that half of all households would be better off, a quarter unaffected and a quarter worse off.

Those paying more, taking into account the current variations in council tax around the country, would be single earner households on around £38,000 and dual income households on above a total in the low £40,000s.

Mr Kennedy played down his party's loss of two seats to the Conservatives on May 5. He insisted that his taxation policies - including a new 50% top income tax rate for high earners - were "certainly not" to blame for the Lib Dems' failure to make a bigger breakthrough.

The Lib Dem tax policy review would focus more on efforts to increase the transparency and fairness of the system than on specific tax rates, he said.

"The last comprehensive review as a party we had of our overall tax policy was some 10 years ago," said Mr Kennedy.

"There's been an awful lot of budgets since then, an awful lot of complexity added to the system by the chancellor.

"It makes sense, and you are being responsible as a party if you take stock and update. That's what we are doing."

He also chided the prime minister for putting John Prescott, a staunch opponent of proportional representation, in charge of the cabinet committee on electoral reform yesterday, saying it was "like putting King Herod in charge of a maternity ward".

He added: "I don't suppose that John Prescott's views about PR are going to change very much, but then there hasn't been much in the way of indication thus far from the government that they are rethinking their approach."