Call for three-year CGT tax holiday

Former Cabinet minister Liam Fox has called for a three-year capital gains tax (CGT) holiday to deliver shock therapy to the ailing UK economy.

Dr Fox, who quit David Cameron's Government last year after disclosures over his unofficial aide Adam Werritty, also called for cuts in benefits for those in employment and changes to make it easier to hire and fire workers. He warned in an interview in The Times that the Conservatives are facing defeat at the 2015 general election unless they take risks to restore growth.

Meanwhile, Tory MP Sir Gerald Howarth, who was sacked last week from his ministerial post, urged Mr Cameron to reverse plans to increase aid spending while cutting back on defence.

"I have yet to meet a Conservative who thinks we should be spending more money on overseas aid," former defence minister Sir Gerald told the BBC. "My message to the Prime Minister and the Cabinet is to give defence a higher priority at the moment."

Dr Fox joined fellow senior backbencher David Davis earlier this week in launching the Conservative Voice group to promote traditionalist Tory views, in what was widely seen as an effort to push the party back to the right after years of Cameron "modernisation".

Asked whether Mr Cameron was the right man to lead the Tories into the election, the former defence secretary told The Times: "Yes, I think the PM is capable of delivering that."

But he said that Chancellor George Osborne's deficit reduction policy was not enough to revive the economy, warning: "If we don't take some risks, we'll not get growth and if we don't get growth we'll not get re-election."

A bold decision to scrap CGT - a tax on the profit made on sales of assets, which raises £3.7 billion a year - would "ricochet round the world" and send out the message that Britain was "open for business", he said. After three years, the tax could be reintroduced at 10%, rather than its current 28%.

"We should simply throw down the gauntlet and say that we are cutting our taxes, we are making Britain more competitive, we are going to reform our labour laws, making hiring and firing easier and do what we know works because it's worked before," said Dr Fox. "Deficit reduction alone won't be enough. We have to have a growing economy. We need to shock the system."

He also called for benefit cuts, arguing: "With the sort of economic problems that we face in the UK, it is irrational and unreasonable to expect that those in work should keep all their social benefits and workplace benefits should be protected, at the cost of making the next generation unemployed. That is not a sustainable generational compact."