SIR MENZIES CAMPBELL could surprise us all yet. Once a public and, above all, media image is formed, it is hard to change it. So after some below-par performances at Prime Minister’s Questions, Sir Menzies was quickly labelled as old fashioned and bumbling. He is now turning out to be both sharper and bolder.

Sir Menzies has stuck closely to the Liberal Democrats’ libertarian instincts on criminal justice and terrorism. In protesting about the “unfair” treatment of the “NatWest three” bankers who face extradition to the US, he has also been well ahead of Tory leaders.

But still largely unnoticed, the Lib Dems are proposing big changes to the rates and structure of taxes. In a speech in the City yesterday, for the think-tank CentreForum, Sir Menzies gave more details of the tax-neutral package prepared by the economics team under Vince Cable, the Shadow Chancellor. But this masks very large changes in taxes, up and down.

The “good” news is taking more than two million workers out of tax and national insurance by lifting thresholds. This is coupled with a two-point cut to 20 per cent in the basic rate of income tax, and a rise in the starting threshold for the 40 per cent higher rate from an effective £38,000 to £50,000, taking 1.3 million people out of the upper tax band.

Sir Menzies argues that a 50p top rate is no longer necessary to make the system more progressive overall, but he is vaguer on the “bad” news. He proposes ending the taper relief on capital gains tax and restricting tax relief on pension contributions to the basic rate of income tax. These would both have a big impact on the better-off and financial services, offsetting much of the impact of the tax cuts. He also announced plans to remove some tax relief for companies, allowing a one point cut in corporation tax, and taxing small businesses on net tax flow, not profit.

Sir Menzies underlined the Lib Dems’ commitment to green taxes, raising about £8 billion from a higher fuel duty, vehicle excise duty and aviation charges related to carbon dioxide emissions and the climate change levy.

Losers are always more vociferous than winners. The key politically is the link with the replacement of council tax by local income tax. This is intended to increase the proportion of revenue raised locally from about 25 to 50 per cent. But several Lib Dem candidates in the South East have argued that this was a big vote loser last year. Not so oddly, we did not hear much about all this in the Bromley by-election, but then the worlds of Lord Rennard, the election maestro, and Mr Cable, the policy brains, tend to be kept well apart.

There is a lot to be said for many of these ideas on their own. But Mr Cable’s full package will have to be specific on who gains and who loses. Sir Menzies and Mr Cable are right to take a fresh look at the tax system, but they also need to get the politics right.

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