George Osborne has come under renewed pressure from the Conservative right to cut business taxes and simplify labour laws in next month’s Budget.

Liam Fox, the former defence secretary, called for urgent action to deal with the “true horror” of the government’s economic inheritance.

Mr Fox, who has kept a low profile since his resignation in October, has returned to the political fray and put himself in the vanguard of a growing Tory campaign to push the chancellor to adopt more radical policies to promote growth.

In an article in Wednesday’s Financial Times, Mr Fox joins fellow Tory MPs in demanding that Mr Osborne overcome Liberal Democrat resistance by deregulating the labour market. He also calls for spending cuts to fund lower employers’ national insurance contributions.

“It is too difficult to hire and fire and too expensive to take on new employees,” he says.

Mr Osborne was buoyed on Tuesday by better than expected borrowing figures but his aides were quick to scotch suggestions that this amounted to a windfall that might be used to fund tax cuts to businesses or individuals in his March 21 Budget. In the 12 months to the end of January 2012, public sector net borrowing fell to £120bn – better than the Office for Budget Responsibility’s estimate of £127bn for the 2011-12 financial year.

Treasury officials cautioned against thinking that Mr Osborne had lots of money to give away. An aide to the chancellor said: “We can’t start giving away small prizes when we are still a long way from meeting our fiscal mandate.”

Instead, the chancellor is looking at possible measures to raise more money from the very wealthy, including closing stamp duty loopholes on upmarket property, to fund a Budget that will boost enterprise while at the same time relieving pressure on the “squeezed middle”.

According to some Conservatives, Mr Osborne is considering introducing new higher council tax bands to cover expensive homes, primarily in the London area.

The idea is similar to that of the Lib Dems’ long-favoured mansion tax, but is gathering support among influential rightwing Tories. Michael Gove, education secretary, said on Tuesday he was interested in the idea of a tax on land, while Tim Montgomerie, editor of the ConservativeHome website, supports higher council tax bands.

But any scheme would have to be designed to hit the assets of very wealthy foreign investors and investment bankers, such as homes worth more than £2m, rather than Tory-voting middle earners whose homes have risen sharply in value.

The Treasury said the idea of new council tax bands was “speculation” that came around at every Budget. Although it could be achieved without a revaluation of all homes – something explicitly ruled out by the coalition – the plan would raise relatively little money and could provoke appeals.

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