When the Lib Dems pledged to raise the income tax threshold to £10,000 in their 2010 general election manifesto many Tories questioned why they hadn’t got their first. The answer was provided by David Cameron during the first TV leaders’ debate: “I would love to take everyone out of their first £10,000 of income tax, Nick. It’s a beautiful idea, it’s a lovely idea – we cannot afford it.”
It turned out, though, that we could. The policy was included in the Coalition Agreement and the Tories, with some chutzpah, now present it as their greatest achievement in government. In his most recent Budget, George Osborne announced that the threshold would rise to £10,500 next year, exceeding Clegg’s original target.
The Lib Dems, however, have long made it clear that they want to go further by increasing the personal allowance to £12,500 by the end of the next parliament. Labour, meanwhile, has pledged to reinstate the 10p tax rate (a policy championed by Tory MP Robert Halfon) disastrously abolished by Gordon Brown in his final Budget in 2007.
These announcements have left the Tories, many of whom, like Milton Friedman, are in favour of cutting taxes “under any circumstances and for any excuse”, asking what their offer will be. One policy long rumoured for inclusion in the party’s manifesto is a cut in the National Insurance threshold. At present, this stands at £7,956, far below the income tax threshold of £10,000. Cutting NI would ensure that the 1.2 million workers who earn too little to gain from another increase in the personal allowance (or from a 10p tax rate) would benefit. The Tories, still viewed as “the party of the rich”, would be able to boast of a tax policy more progressive than that of their rivals.
But as in 2010, the Lib Dems have got there first. Danny Alexander announced today that after achieving a personal allowance of £12,500, the party would “seek to raise the level that people start paying employee National Insurance”. 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.
“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.”
It sounds good, but the Chief Secretary to the Treasury notably avoided the question of how the move would be paid for. With the IFS warning that the next government will need to raise taxes (or cut welfare) by £12bn merely to keep departmental spending cuts at their current pace, all parties should be more focused on raising money than giving it away.
But nine months away from a general election, politics is trumping policy. That means the pressure is now on Cameron to deliver a conference-dazzling tax cut pledge this autumn. How he will do that while pledging to eliminate the deficit by the end of the next parliament, and to avoid any further tax rises, is another question.
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