THE Liberal Democrats yesterday were embroiled in a row over taxation

which left the impression that their economic policies are in a muddle.

Treasury spokesman Malcolm Bruce launched a budget presentation in

which he said that those at the highest end of the income scale should

expect to contribute more than at present, but would pay a ''realistic''

rate of no more than 50%.

This appeared to contradict a party document, published only last

month which said the highest rate -- for incomes over #100,000 -- would

not exceed 60%.

At a news conference later, Mr Bruce, who was making his debut speech

as Treasury spokesman, denied that the party had been panicked into

pulling back from a 60% tax rate by adverse reaction and the threat of

being portrayed as a high-tax party.

He tried to calm the waters by stating that he had been setting out

his own priorities.

The forward indicators were that it would not be necessary to have

taxes at 60%, and he was anxious to draw attention to other aspects of

the budget package.

Earl Russell, a member of the working group which came up with the

original 60% proposal, said the figure was not sacrosanct, while party

leader

Paddy Ashdown said Mr Bruce had been ''courageous'' in putting forward

his views.

However,Mr Bruce's statement was immediately seized upon by the other

parties.

Labour Treasury spokesman Alistair Darling said: ''The Liberal

Democrat tax plans are in complete disarray. It must rank among the

quickest U-turns in political history.'' Treasury Minister David

Heathcoat-Amory said that the announcement was no more than ''window

dressing'' designed to conceal substantial tax rises for middle-income

earners.

In his budget presentation, Mr Bruce held out the prospect of reducing

tax thresholds to perhaps 10% for the lowest-rate taxpayers.

He presented what he described as a radical rethinking of taxation

policy, aimed at producing a fairer system while at the same time

encouraging business enterprise.

He told the conference: ''There is scope for radical rethinking. Taxes

on lower-

income earners start too soon and at too high a level. I want this

party to address this issue further by lowering the threshold rates of

the lowest tax payers. This would enable us to tackle the proliferation

of allowances, giving realistic allowances for everyone who is actually

paying tax.

Mr Bruce put forward proposals to introduce taxes on pollution to

replace taxes on wealth creation, and said there might be some scope for

what he described as ''earmarking''.

He continued: ''For example, if urban road pricing was introduced,

some revenue could be targeted to urban public transport. But overall

these tax reforms should be offset against each other in our own fully

costed programme.

''It may even help us to cut the tax levels of the lowest income

earners -- perhaps to as low as 10%.''

THE row over how the party should act in the event of a hung

Parliament after the next General Election, continued to rumble on.

Labour's local government spokesman Jack Straw said that there could

be no question of any pact with the Liberal Democrats.

''There is no question that the Liberal Democrats are the scavengers

of British politics. They will do or say anything to secure a bit of

influence,'' he said.

Conservative Party deputy chairman Dame Angela Rumbold said that a

vote for the Liberal Democrats was effectively a vote for Labour.

''It is a deception on the part of the Liberals if they say: 'Vote for

us. We're not the Labour Party.' They are and always traditionally have

been,'' she said.

However, the outgoing president of the Liberal Democrats, Mr Charles

Kennedy, said there was a need to get away from ''this accursed

debate.''

He said: ''In a year's time, I would like us at this conference to be

seen to be understood as an independent, separate party, not obsessed

with other parties, not constantly being quizzed as to where we stand.''