Chancellor Osborne Rules Out 'Mansion Tax'

George Osborne has ruled out the idea of introducing a "mansion tax" - one of the Liberal Democrats' key demands.

The move is likely to prove highly popular with Conservative MPs - particularly on the party right - but will heighten tensions with their coalition partners.

The Lib Dems reacted with dismay when Prime Minister David Cameron used the veto to oppose the EU fiscal pact last December.

They have continued to lobby Mr Osborne to adopt their plan for an annual levy on homes worth more than £2m, which they first proposed in opposition.

However, Mr Osborne said he was not prepared to accept a tax which "clobbered" people who had worked hard and saved to buy their homes.

He told Sky's Dermot Murnaghan: "We will not have that tax, and nor did I think it is sensible to have a wealth tax in the sense of a tax on your wealth levied annually.

"Other countries have tried that and it has not worked, it has driven enterprise abroad."

Instead, he said the Government would be extending the council tax freeze for a third year in a row, while rises in regulated rail fares would be capped at retail price inflation plus 1%.

Mr Osborne also rebuffed suggestions he and the Conservative Cabinet were 'posh boys' out of touch with the wider public.

The Chancellor said: "That is a characterisation by my political opponents who have created this mess the country is in.

"We had all of those years in the Treasury, Ed Balls and Ed Miliband, where they could have taken these kinds of decisions to, for example, increase stamp duty on the sale of expensive homes."

When asked to explain how he could claim the rich would shoulder the responsibility to reduce the debt when, in his March budget, he reduced the top rate of tax by 5p for anyone earning more than £150,000, Mr Osborne insisted the reduction would create jobs to stimulate the economy.

"The people paying the price (of the cut) were the poor looking for work and not the rich who were not, in fact, paying it. That is why we got rid of it," he said.

"It is hopeless to have a 50p rate which is higher than most of our European competitors. In the same budget, I increased four times as much tax on the rich than the saving from the 50p rate.

"I also increased stamp duty for the richest properties, I restricted tax relief for the wealthy, and I did these things precisely because I am very clear that the wealthiest must bear the greater share of the deficit problem.

"They must bear the greater share but they cannot do it alone. The economy is healing, the deficit is down by a quarter and a million jobs have been created, but it is taking longer than anyone had hoped.

"Our entire economic policy is an enterprise policy. If you do not deal with debts, then the interest rate goes up and it clobbers business, hits families, and it leads to the kind of mess that frankly we inherited from the previous government."

But Mr Cameron has said it is "too early to say" whether the coalition Government would hit its key target for public sector debt to be falling by 2015.

"I'm not an economic forecaster so I cannot tell you exactly what is happening in terms of the day-to-day growth, but I can tell you that our economy is rebalancing," he said.

"Are the Conservatives deserting the common ground of British politics? Absolutely not," he said.