Liam Fox Fuels Tory Divisions Over Economy

As Conservative tensions continue, senior Tory Liam Fox has called for a five-year spending freeze to fund tax cuts and help slash the deficit.

Dr Fox, a former Defence Secretary, brought Tory austerity divisions to the fore in a speech demanding a change in economic policy.

He warned that David Cameron is wrong to exempt spending on schools, aid and the NHS from the £10bn in cuts he is targeting for 2015-16.

And he urged a total rethink of earnings and savings taxation, including a Capital Gains Tax holiday, to breathe life into the ailing economy.

His intervention came less than a fortnight before Mr Osborne's crucial Budget and as Tory fears of electoral oblivion in 2015 are growing.

A poll at the weekend put the Tories on just 27% - one of their lowest ratings in years. Another suggested Labour would take 93 seats from the Tories in 2015, to win with a huge majority.

The Prime Minister is already facing pressure from Business Secretary Vince Cable over the ringfencing of certain departments, who warned it isn't "very sensible" in the long-term.

And Home Secretary Theresa May and Defence Secretary Philip Hammond are also resisting moves to further cut their budgets, along with welfare spending.

In an address to the Institute of Economic Affairs, Dr Fox said: "I believe that in leaving money in people's pockets, economic activity will follow. People will buy houses, invest for their future or just go shopping.

"Whichever is the case, it's creating a society that is sustainable for the future in the way that our current - welfare-dependent and debt-ridden - economy is not.

"We should gradually move towards the reduction - or even abolition - of the taxes where the state not only taxes the same money on multiple occasions but discourages the very behaviour that would lead to a more responsible society."

The speech came after Tory MP Sarah Wollaston warned the Prime Minister he was "running out of time" to tackle problems with his "posh" top team.

She wrote on Twitter: "Inner circle still look far too posh, male & white & Cameron is running out of time to fix it.

"I consider myself a Cameron loyalist; he is the best person for the job but should listen to critical friends.

"I am a Cameron loyalist but he needs to change his inner circle which just seems to be telling him what he wants to hear."

Meanwhile, Mrs May fuelled speculation she harbours future leadership ambitions in a wide-ranging speech over the weekend, which included plenty of proposals to appeal to the Tory right.

Tory backbencher Eleanor Laing said: "There are some people who are clearly positioning for what might happen after the next general election and there are some people who are openly talking about challenges to the leadership.

"They should all be quiet. They should all get their heads down and work together as one Conservative Party for the good of the country."

Dr Fox later dismissed the prospect of a leadership challenge to Mr Cameron before the  2015 election but refused to rule himself out as a candidate in a future contest.

"I think there is no chance of us having a leadership election in the Conservative Party before the next (general) election. I think that would be madness," he said.

"If in 10 years time David Cameron stands down, I'll see how I'm holding up at that point."

Last week, Mr Cameron evoked Margaret Thatcher when he insisted he could not afford to change tack on the economy, insisting: "There is no alternative."