David Cameron sharpened the political divide with Labour today pledging to divert cash from public spending to tax cuts for savers.

The Tory leader said an incoming Conservative administration would abolish income tax on savings by basic-rate taxpayers and raise pensioners’ tax allowance by £2,000.

The £4 billion cost of the measures would be met by reducing public spending in all areas other than on schools, the NHS, international development and defence.

They would encourage the “really big change” required to transform Britain “from a spend, spend, spend society into a save, save, save society”, he said.

The Conservative plans would increase a pensioner’s annual tax-free income allowance to around £11,000 – from the current £9,030 for 65-74-year-olds and £9,180 for over-75s.

The scheme would be worth up to £400 a year to pensioners with income from savings, who have seen their personal budgets hit by successive cuts in interest rates from the Bank of England.

The policy is the latest unveiled by the Tories as they seek to answer Gordon Brown’s charge they would do nothing to shorten the recession or alleviate its effects.

As both parties battle to be identified with more positive times ahead Mr Cameron sought, instead, to portray a divide between ineffective, wasteful state intervention under Labour and a “good future” under his leadership.

Mr Cameron lashed the Government’s £12 billion VAT cut to kick-start the economy as “economically stupid and morally indefensible” because it encouraged debt and undermined saving.

He turned Mr Brown’s “do nothing” gibe at the Tories back against Labour, accusing the Government of failing to respond to Conservative proposals for a £50 billion national loans guarantee scheme.

“Just what is this great economic mobilisation the Prime Minister keeps talking about?” he asked. “As far as I can see, unemployment’s going up, repossessions are going up and the economy’s going down, with nothing Labour are doing making much difference...

“Gordon Brown’s policies for the recession are not working. The recession is getting worse not better.”

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