NEWCASTLE (Reuters) - Liberal Democrats proposed targeting the rich with a "tycoon tax" only days before they and their Conservative Party coalition partner present an annual budget, in a high stakes gamble to revive the party's flatlining poll ratings.
The last-minute proposal is one of several levies on the rich the Lib Dems want included in the budget to pay for the party's key policy of additional tax cuts for the lower paid.
But Clegg is unlikely to get all of his tax plans adopted.
The widely publicised plans look set to strain ties with the Conservatives, the senior party in the coalition, who may block or water down the moves and make the Lib Dems look ineffectual.
The Conservatives are traditionally the party of the wealthy, but are on the defensive as bankers continue to receive millions in bonuses even as state spending is cut to bolster a faltering economy.
The Lib Dems hope to harness public fury over soaring executive pay amid harsh austerity measures to pressure finance minister George Osborne, a Conservative, to take on their proposals when he presents the budget on March 21.
"The sight of the wealthiest scheming to keep their tax bill down to the bare minimum is frankly disgraceful," Lib Dem leader and deputy prime minister Nick Clegg told party members on Sunday at the end of the Lib Dems' annual spring conference.
"So, we will call time on the tycoon tax dodgers," he said.
The centre-left Lib Dems have seen their popularity slump in coalition government, and have been abandoned by many supporters amid accusations of ignoring party values to share power with the Conservatives, ideological opponents on many issues.
Clegg hopes targeting tax avoidance and the wealthiest will fund a flagship budget proposal to speed up a plan to cut taxes on poorer workers, clawing back grassroots support and distinguishing the Lib Dems from the Conservatives.
"The budget in ten days time ... must offer concrete help to hard-pressed, hard-working families," Clegg said.
A Lib Dem source close to Clegg said: "To raise the stakes like this, 10 days out from a budget in a conference speech, shows the personal attachment Clegg is putting to this fundamental front page manifesto policy."
"INDUSTRIAL SCALE TAX DODGING"
The Lib Dems want four key levies on the rich, but the so-called tycoon tax - inspired, Clegg says, by reports U.S. presidential candidate and multi-millionaire Mitt Romney only pays 13.9 percent tax - is likely to grab the most headlines.
Clegg said he expected the levy to tax the overall income of wealthy people by at least 20 percent, a move similar to U.S. President Barack Obama's "Buffett Rule" proposal to tax at least 30 percent of the income of people making more than $1 million.
The Lib Dem source said the proposal would close loopholes and the use of tax relief to prevent the rich "tax dodging on an industrial scale by paying an army of fancy accountants".
He said initial research had found that hundreds of Britons with annual income over a million pounds ($1.6 million) paid less than 20 percent tax overall. Britain sets thresholds for increasing rates of tax with 50 percent being the top rate.
Yet the plan, aired for the first time on Saturday, is preliminary and seems unlikely to be included in the budget, with some of the party's top ministers still vague on details.
Lib Dem party heavyweight Business Secretary Vince Cable told Reuters he knew little of the new tax: "I haven't seen the details of the proposals, so I can't give you a very informed comment ... (but) the idea is an interesting one."
The proposal may be aimed at filling a gap made by the Conservatives' likely rejection of the Lib Dems' cherished "mansion tax" proposal, a levy on expensive homes.
Clegg told a British newspaper the property tax was a "sensible" idea but it was better to focus on tax avoidance.
The two remaining levies - reducing tax relief on pension contributions for wealthier people and tightening tax rules on property sales, known as stamp duty - are less controversial.
Observers say Clegg is likely to have had assurances that at least some of his party's proposals, in particular faster tax cuts for poorer workers, will be included in the budget in some form for him to air the plans so publicly.
Clegg has broken Britain's convention of secretive budget negotiation by announcing his party's demands in advance, a change reflecting the arrival in of the country's first coalition government in generations after elections in 2010.
Yet Clegg also risks losing credibility if the budget appears to contain little of his input, a very real risk given the lack of clarity surrounding his tycoon tax proposal and Conservative resistance to his mansion tax.
"I think it's a real lesson for them. It's all very well having 700 policies in opposition, but in government you can't fly quite so many kites and abandon things quite so quickly. I do think that's a serious issue for them," said Andrew Russell, politics professor at Manchester University.
(Writing by Mohammed Abbas; Editing by Louise Ireland)