High-impact tax cuts may just save Coalition from the exit come the election Savers, traditionally a bedrock of Tory support, are also being eviscerated by ultra-low interest rates: the lethal combination of inflation and taxes means that capital is being destroyed on a massive scale, gradually impoverishing millions. As to those seeking to convert pension savings into annuities, the situation is even more appalling, and is forcing many to delay retirement. There are, of course, compensating factors: employment is up by 378,000 over the past year, which means that many families are better off; the Coalition's tax cuts on low earners have helped take-home pay. For the 64 pc of the population who own their own home, and for all those with direct or indirect stock market investments, net wealth is going up again. No wonder that the Coalition continues to cling so desperately to easy money and to schemes such as Help to Buy. It hopes that rising asset prices will help to compensate for the diminishing value of bank account savings and falling wages. But complacent Tories ought to take a look at the November Markit Household Finance Index, a measure of households" perceptions of financial wellbeing. The survey has fallen to its lowest measure since April, and four times as many households (29pc) reported a deterioration in their finances during November as saw an improvement (7pc). They should also cast their eye over the latest Legal & General MoneyMood Household Finance Report, which indicates that almost one in five homes across the UK is struggling, up on the same quarter last year. There is a general sense that the economy is improving, but most poor and middle-class families are finding it tough. There is a living standards crisis - but so far the Coalition has focused on the wrong costs. Of the 23.4m households in Britain, just 7.8m have a mortgage; far fewer people than is commonly understood benefit directly from the Bank of England's ultra-cheap money. There are far more savers and wage earners, and they are hurting. None of this is likely to change any time soon. Pay rises are low because productivity is still falling. The Bank of England is still unlikely to hike rates before the election. While it isn't impossible that pay rises could recover somewhat, and that inflation could drop further, the best case scenario is that real terms pay cuts will cease at some point in late 2014 or early 2015, hardly a game-changing prospect. So what should be done? Even if they wanted to act radically, the Tories are disastrously hemmed in by the coalition. Many of the supply-side reforms they should have introduced a long time ago - such as the liberalisation of child-minders to reduce child care costs, or cuts to incentive-destroying marginal tax rates and other measures to boost productivity - won't now happen this side of the election. Many votes will be lost as a result. Instead, Osborne should concentrate on a small number of deliverable but high impact tax cuts, starting next month and continuing next year. They should be targeted but not gimmicky; they need to capture the public's imagination, noticeably improve the take home pay of the poor and middle classes, cut the cost of energy, and dangle the prospect of much more to come after the election. First, Osborne should give those on low incomes another boost either by increasing the personal allowance by an extra £500, as advocated by the Lib Dems. This would be tantamount to a tax cut of £3.25bn. Next, he should slash the basic rate of income tax by 1p, a £4.3bn boost that would catch the public by surprise and remind voters that he still believes in easy to understand, across-the-board tax relief. Osborne must also help business by cutting and not merely freezing business rates, delivering a £2.5bn fillip to business - which would disproportionately help small shops - and neutralising Labour's attempt to help small ratepayers while hurting bigger firms. Osborne should then tackle the cost of living crisis head-on and eliminate as many green levies as possible, starting with the Energy Companies Obligation scheme (Eco); the programmes should either be abolished entirely, or at least rolled into general expenditure without hiking other taxes. This should go hand in hand with well-publicised, proportional cuts by energy firms to their prices to reflect their lower cost and would send a strong message that the coalition does care. Petrol and beer tax should also continue to be frozen. The final prong of this tax cut manifesto should target homeowners and families: at the very least, stamp duty should be reformed. Instead of paying 1 pc (or £2,500) on a home worth £250,000 but 3 pc (£7,500) on one worth £250,001, the higher rate should only apply to the marginal value above the threshold. Osborne should also relaunch his inheritance tax pledge and promise to increase the tax-free threshold to £1m if the Tories win in 2015. This proved hugely popular last time around, derailing Gordon Brown's plan to call a snap election, and would dramatically shake up the political landscape this time too. With the economy growing, a further round of spending cuts has become more politically possible: Labour's now-jettisoned line that the cuts "are too far and too fast" has lost its potency; and polls show that austerity is diminishing in salience. Osborne should cut spending by an extra 1 pc of GDP over the next two years to "pay" for these tax cuts. The Chancellor is naturally cautious, and will be reluctant to take any risks. But unless he finds it in himself to embrace shock and awe tax cuts, thus putting Labour on the back foot and reaching out to disaffected voters, he will be condemning the Tories to almost certain defeat.