Kennedy is likely to spell out plans to scrap the council tax

It is a shift in policy for the party, which previously campaigned for an extra penny on the basic rate to pay for better public services.

The savings would be found by selling off assets like the Royal Mint, and cutting the number of ministries.

Lib Dem leader Charles Kennedy says his party could save �25bn over five years.

Decentralise

Mr Kennedy was outlining the Liberal Democrats spending plans for the next election during an event in the City of London on Thursday.

Under a Lib Dem government, the council tax would be scrapped and replaced by a local income tax based on ability to pay, he said.

We will also abolish the most unfair and unpopular tax in Britain - the council tax - to replace it with a fair local tax based on the ability to pay Charles Kennedy

There would be a new 50% tax rate for those earning over �100,000 to pay for the abolition of tuition fees.

Out would go the Department of Trade and Industry plus seven other government departments, the proposed Child Trust Fund and identity cards, with savings being diverted into strengthening the police.

His party would consider moving the Treasury to Liverpool, saving millions of pounds and at the same time expanding the economy of the regions.

Mr Kennedy said: "As part of this programme of decentralising government in Britain, we would abolish up to eight government departments, scrapping some functions entirely, devolving others and reducing the number of ministers from 112 to 70.

"We will also abolish the most unfair and unpopular tax in Britain - the council tax - to replace it with a fair local tax based on the ability to pay. Many pensioners would pay no local tax at all."

'Target obsessed'

Mr Kennedy said his party had earmarked areas where �5bn a year could be saved - money which could be ploughed back into its priorities of tackling crime, health, pensions, education and overseas aid.

Under Labour, people had yet to see a significant improvement in the quality of public services, he said.

From uncosted commitments on pensions to promises on bee-keeping, there is not an area where the Liberal Democrats have not called for more spending Ian McCartney Labour chairman

"There are two key problems - too much money is being spent on low priority areas with not enough making it through to the front line," said Mr Kennedy.

"And the government insists on controlling everything from the centre, obsessed with targets that are insensitive to local conditions.

"Micro-management from Whitehall is inefficient and ineffective. This formula is simply unsustainable in the long-term."

'Wasteful'

The announcements follow shadow chancellor Oliver Letwin's claims that he could make �35bn of savings a year by 2011, while also matching Labour's schools and hospital spending pledges.

The sad fact is that the country cannot afford either the Labour or Lib Dem programme, because the country cannot afford another set of tax rises after the next election Oliver Letwin

Mr Letwin said later he agreed with the Lib Dems that elements of government spending were "wasteful, inefficient and unnecessary".

But he added: "The sad fact is that the country cannot afford either the Labour or Lib Dem programme, because the country cannot afford another set of tax rises after the next election."

Labour chairman Ian McCartney described the Lib Dems as the party "that can never say no".

"From uncosted commitments on pensions to promises on bee-keeping, there is not an area where the Liberal Democrats have not called for more spending," he said.