Listen to Clegg on the personal allowance, Mr Osborne

Listen to Clegg on the personal allowance, Mr Osborne
Rory Meakin  •  2020 Tax Commission  •  Monday 14 March 2011

The Deputy Prime Minister Nick Clegg has signalled that the Government will announce another increase in the personal allowance. The amount of money people can earn before they start paying tax is already scheduled to increase in 2011-12 by £1,000 from £6,475 to £7,475. But Liberal Democrats want it to rise faster to over £8,000. Mr Clegg said:

“We are already shaping government tax policy and will continue to do so in the years to come. We will take real steps every year, including in the Budget in 10 days time, towards our goal that nobody earning less than £10,000 pays any income tax at all.”

Worth less with each year

The Liberal Democrat leader is right to call for a faster rise in the personal allowance. But £8,000 in 2011-12 is not enough and should not be counterbalanced by dragging more people into the higher 40 per cent rate. The Liberal Democrat manifesto included a pledge to increase the personal allowance to £10,000 in 2011-12 and they should persuade their coalition partners to adopt that policy. As I have previously said, £10,000 in the future is not the same as £10,000 today. In fact, with earnings predicted to rise by 21% by 2015-16 a £10,000 personal allowance then would be equivalent to just £8,264 now.

Increasing the personal allowance to £10,000 now would go a long way to making work pay for those who want to return to work and would lift a heavy burden for hard working people on low and ordinary incomes. It should be implemented in full, not watered down.

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