The Tories must ‘rediscover the virtues of low taxation’ and offer bigger and faster tax breaks for millions of middle-class taxpayers, a former Cabinet minister says today.

Owen Paterson, sacked by David Cameron in this summer’s Government reshuffle, said the threshold for the 40p higher income tax rate would now stand at more than £75,000 if it had risen in line with wages.

He praised the Prime Minister’s commitment last month to increase the threshold, currently £41,865, to £50,000 by 2020 if the Conservatives win next year’s general election, and George Osborne’s big cuts in corporation tax.

But in an interview with the Daily Mail, he said the party should go ‘further and faster’ on the 40p rate, and also promise reductions in stamp duty, inheritance tax and capital gains tax.

In a shot across the Chancellor’s bows, Mr Paterson warned that it was ‘irresponsible and immoral’ for Britain to keep borrowing at current rates – saying that despite the ‘best efforts’ of the Coalition, public spending was still far too high.

‘The brutal fact is that over the last 40 years, no British government has ever managed to raise more than 39 per cent of national income in tax in a single year,’ he said.

‘Everything above that has to be borrowed. We inherited a big mess – in Gordon Brown’s final year, borrowing stood at £300,000 a minute. 

'But we’re still borrowing £200,000 a minute because the coalition government will be spending over £100billion more than it raised in this final year in office.

‘It’s both irresponsible and immoral to keep borrowing at the current rate and to expect our children to pay the interest. We need to cut spending further and reduce borrowing. 

'The job is not even half done.

‘We’re going in the right direction. But clearly, on tax if we want to really reward people and grow the economy we should also want to go further.’

Mr Paterson continued: ‘It’s high time we Conservatives rediscovered the virtues of low taxation. Low taxes encourage effort, initiative and enterprise. 

'People in the middle need more incentives because they are the ones who produce the wealth.

‘The 40p tax rate only applied to one in 20 in the late 1980s – now it’s nearly one in six. Had it been indexed in line with wage growth, it would cut in at over £75,000 a year.’

As well as faster action on the 40p tax rate, the former Environment Secretary, whose rancorous dismissal in July angered the Tory Right, also called for cuts to inheritance tax, stamp duty and capital gains tax to feature in the Conservative election manifesto.

Stamp duty used to be levied at 1 per cent and only on the most expensive properties. But by 2018, four-fifths of homes will be hit by it. 

Mr Paterson said it had been a ‘nonsense’ for the Coalition to increase capital gains tax to 28 per cent – a decision which had caused a ‘sharp reduction in the amount of income coming in’.

He suggested Mr Cameron should revive his commitment at the last election – scuppered by the Liberal Democrats – to exempt everyone but millionaires from inheritance tax. 

‘It’s double taxation – people have already paid tax once on their earnings,’ the MP said.

Mr Paterson was speaking ahead of today’s launch of his new centre-Right think-tank, UK2020, which he said would promote ‘common-sense, small ‘c’ conservative’ solutions to Britain’s problems.

He set out further proposals for cutting spending – saying there were ‘too many chairs’ at the Cabinet table. The number of government departments had only been maintained by Mr Cameron to give Lib Dem ministers jobs, Mr Paterson claimed.

‘We shouldn’t shy away from getting rid of departments,’ he said. ‘Can we really afford the Business Department, the Energy and Climate Change Department, Culture, Media and Sport or International Development as independent departments with all the associated costs?’

Mr Paterson praised Iain Duncan Smith’s work to reform the welfare system. But he insisted more work was needed given that welfare spending is still ‘soaking up £120billion a year’.

If pay and pensions in the public sector were brought down to the average in the private sector it would save £50billion a year. Fraud in the public sector, estimated to cost as much as £20 billion a year, should also be reined in.