Decades of Labour and Conservative rule has created an unsustainable economy, preoccupied with the artificial wealth of inflated property prices rather than productive work and invention. Our economy is too dependent on the “Square Mile” – the City of London – instead of on all 100,000 square miles of Britain. We will set out a clear plan to bring the national budget back under control, taking tough decisions in public spending to avoid the salami slicing of key public services. We will set up an infrastructure bank to direct private finance to essential projects such as new rail services and green energy. We will break up the banks, to ensure that taxpayers are never again expected to insure the activities of high-risk ‘casino’ banking.

Cutting taxes for people on low and middle incomes – There will be no income tax on the first £10,000 you earn – meaning 3.6 million working people and low income pensioners will no longer have to pay any income tax at all, while millions more will have an income tax cut of £700. Pensioners will get up to £100 extra. The change will be paid for by introducing a mansion tax, closing loopholes that benefit the wealthy and making sure airlines pay for the pollution they cause.

Getting the public finances in order – We will set out a clear plan to reduce the deficit and get public finances in order. Our approach will be based on economic indicators not political dogma. We will base our decision of when to start cutting the budget deficit on five tests; the rate of growth; the level of unemployment; credit conditions; the extent of spare capacity in the economy and the cost of Government borrowing. We plan to cut spending by, for example, capping public sector pay rises to £400 for two years, abolishing the Child Trust Fund, and scraping unnecessary defence projects including the like-for-like replacement of Trident.

Saving to spend – When people are losing their jobs, it’s right to reallocate some of the money we save to help them. We will immediately reallocate £3.1 billion pounds to jobrich capital projects like bringing empty homes back into use, insulating schools and developing renewable energy. Over the longer term we will cut further wasteful or low priority spending so there is money to invest in improving education for our children as well as to pay down the deficit.

Sorting out and breaking up the banks – The UK banks owe their very existence to the British taxpayer. Some banks such as RBS, Lloyds-HBOS and Northern Rock have received direct taxpayer bailouts. However, all have benefited from the explicit guarantee that none of them will be allowed to fail. Yet many of these banks continue to engage in high risk activities which are of little or no benefit to ordinary taxpayers knowing that if things go wrong they can turn to the taxpayer. This is fundamentally wrong and the Liberal Democrats will split up the banking system, to make sure we are no longer expected to underwrite high risk banking. This will take time so we propose to introduce a 10% levy on bank profits as a recognition of the protection they receive until they have been broken up.