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The Conservative frontbench played down a proposal to abolish inheritance tax today, saying it was just one of "a range of options" being looked at to invigorate the British economy.

Although he welcomed a series of suggestions to cut taxes — on inheritance, corporations and capital gains — by John Redwood, the former minister, George Osborne, the Shadow Chancellor refused to directly endorse any of them and said any tax cuts would be offset by increases in other areas, such as new green taxes.

"For tax reductions to be meaningful they have to be sustainable. That is why I have said all along that economic stability and sound money come first and we won’t take risks with the public finances," said Mr Osborne on another day of instability on the global markets.

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Abolish inheritance tax? George Osborne did not seem to be completely sold on the idea

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"Any reductions in specific taxes will have to be balanced by tax increases elsewhere, most notably green taxes," he said.

Mr Osborne described a 211-page policy report by Mr Redwood as "the most impressive and comprehensive analysis of the state of the British economy produced by any political party in recent times", but he struck a decidedly more cautious note than the Thatcherite MP and one-time Tory leadership contender.

At its launch today, Mr Redwood described the report, "Freeing Britain to compete", as an attempt to rid the UK of its current "lethal and toxic mix of too much tax and too much regulation".

The plan, co-authored with Simon Wolfson, the CEO of Next Plc and son of Lord Wolfson, Margaret Thatcher's chief of staff, recommended abolishing inheritance tax, cutting corporation tax to 25 pence in the pound, raising the threshold for higher rate income tax, and cutting stamp duty on share deals.

Mr Redwood said that the simpler, lower tax regimes of Ireland and the US should be examples to the UK, which has lost its economic competitiveness despite the general health of the global economy over the last 15 years.

"Ireland shows that if you cut capital taxes and business taxes you create more jobs, you generate more revenue and you have better public services," said Mr Redwood. He declared that tax cuts and lighter regulation should be combined with a "big surge in investment" in failing services, such as Britain's dilapidated transport infrastructure.

Even though it is paid by just 6 per cent of estates and provides less than 1 per cent of Government revenue, scrapping inheritance tax is seen as a potential vote winner for David Cameron in his first election as Tory leader.

Around two million properties in the UK are now worth more than the current threshold of £300,000, over which 40 per cent of a person's estate is passed to the Government. Although Gordon Brown used his final Budget to raise the threshold to £350,000 by 2010, there is considerable antipathy towards "death taxes" as they are described by opponents.

"Inheritance tax is not a popular tax. This has become even more true as the swift rise of house prices in much of the country has resulted in many people, who could not in any sense be described as rich, suddenly finding that their family will be liable to pay quite substantial amounts upon their estate," said today's report.

But the recommendation to abolish the tax has exposed the Conservatives to accusations that the party is drifting to the Right, in an attempt by Mr Cameron to recover the initiative after a difficult summer of internal policy wrangles. Critics add that the party does not have a plan to make up a projected £2.6 billion shortfall in tax revenues.

Alistair Darling, Mr Brown's successor as Chancellor of the Exchequer, said that Mr Redwood's package of recommendations showed that the Tories were leaving the political centre ground. "It seems to be going back to where we were 10 or 20 years ago. It is a decisive shift to the right in their approach," he said.

A wary Mr Osborne described the plan to abolish inheritance altogether as just one of range of options.

"Inheritance tax was originally designed to target the very rich," he said. "But these days the very rich avoid it by hiring expensive tax advisers. It is an increasing number of ordinary homeowners who are now hit by inheritance tax and that is unfair. So I will be looking very carefully at any proposals to ease the burden of this tax on these families."

Despite the reluctance from his frontbenchers, Mr Redwood's far-reaching tax-cutting proposals, including reductions to Capital Gains Tax and the corporation tax — such as a drop to 20 per cent for small businesses — won a warm reception among business leaders.

Sally Low, the director of policy at the British Chambers of Commerce, said: "British business needs a low-tax, low-regulation economy and by focusing on reducing corporation tax, the problems created by excess red tape and improving the nations transport infrastructure the report correctly identifies the solutions to improving our competitiveness."

John Walker, policy chairman at the Federation of Small Businesses, said: "The current system of regulation is holding back the UK economy and preventing the creation of more jobs. Mr Redwood has correctly identified that in his report. Reducing the complexity of regulations is the way forward."

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