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Lib Dems pledge to raise income tax allowance Lib Dems pledge to raise income tax allowance to £12,500 a year
(about 1 hour later)
The Liberal Democrats have pledged to raise the income tax personal allowance to at least £12,500, in manifesto plans announced on Thursday. The Liberal Democrats are to burnish their credentials as the tax-cutting party for the low paid by floating the possibility of cutting national insurance contributions for anyone earning below £12,500 a year.
The party has also signalled it would seek to increase the amount people can earn before paying national insurance. In a challenge to David Cameron, who is facing pressure from Tory MPs to pledge bold tax cuts as the economy grows, the Lib Dems will pledge in their general election manifesto to raise the level at which workers start to pay national insurance contributions.
Danny Alexander, the chief secretary to the Treasury, said the allowance would rise by the end of the next parliament. The move would cut income tax for 30 million workers and save the typical basic-rate taxpayer £400 a year, the party claimed. It would also benefit more than 6 million pensioners. Employees currently start paying national insurance on earnings above £153 a week, or £7,956 a year, at a rate of 12%. The Lib Dems say they hope to raise this to £12,500 by the end of the next parliament – bringing employee national insurance contributions into line with income tax.
Alexander said the tax system had to be fair and help being in work pay. "That's why cutting income tax for working people, particularly those on low and middle incomes, is a top Liberal Democrat priority. The Lib Dems, who will beat the goal set out in their 2010 manifesto to raise the personal income tax allowance to £10,000 in this parliament, have already indicated that they will pledge to raise it to £12,500 by 2020. This means that no income tax would be paid on earnings below this level.
"It was on the front page of the 2010 Liberal Democrat manifesto and we have fought to keep it on the agenda at every budget. By April next year we will have delivered a tax cut to over 26 million people worth £800 a year to a typical basic-rate taxpayer and taken over 3 million out of tax altogether. Now we want to go even further and lift the amount of money people can earn before paying income tax to £12,500." But Danny Alexander, the chief secretary to the Treasury, has gone a step further and said that the Lib Dems will work towards ensuring that no employee national insurance contributions are paid below this level. The Institute for Fiscal Studies has estimated that aligning the income tax allowance with employee national insurance contributions would lead to tax cuts for 1.2m employees.
He added: "The Liberal Democrats are the only party in British politics with a long-term commitment to cutting taxes for the working people of Britain. We've delivered the largest programme of tax cuts for a generation over the last four years, despite all of the other financial pressures. Alexander said: "Our tax system must be fair and help to make being in work pay. That's why cutting income tax for working people, particularly those on low and middle incomes, is a top Liberal Democrat priority.
"It was on the front page of the 2010 Liberal Democrat manifesto and we have fought to keep it on the agenda at every budget. By April next year we will have delivered a tax cut to over 26 million people worth £800 a year to a typical basic-rate taxpayer and taken over 3 million out of tax altogether.
"Now we want to go even further and lift the amount of money people can earn before paying income tax to £12,500. This will take hundreds of thousands more low earners out of tax altogether and give millions of working people a further tax cut of £400.
"This move will also give a tax cut to over 6 million pensioners. When we've reached £12,500 we will seek to raise the level that people start paying employee national insurance.
"These manifesto commitments will mean nothing less than a generational shift to a fairer tax system that rewards work and helps working people. That's the way to build a stronger economy and a fairer society and ensure that everyone has the opportunity to get on in life.""These manifesto commitments will mean nothing less than a generational shift to a fairer tax system that rewards work and helps working people. That's the way to build a stronger economy and a fairer society and ensure that everyone has the opportunity to get on in life."
George Osborne announced in his budget in March, under pressure from the Lib Dems, that the personal tax allowance would be raised to £10,000 a year for the current financial year. The chancellor announced that this would be increased to £10,500 for the 2015-16 financial year, meaning the Lib Dems will beat their 2010 general election manifesto commitment by £500 a month before polling day.
The Tories are claiming the raising of the personal tax allowance as one of their signature themes. But Alexander says the Tories have embraced the idea after initially saying it was unaffordable.