Tories and Lib Dems bicker over rise in tax allowance

A call for the personal income tax allowance to be raised to £10,500 a year has led to fresh skirmishes between Nick Clegg’s Liberal Democrats and his Conservative coalition partners (Getty)

A call for the personal income tax allowance to be raised to £10,500 a year has led to fresh skirmishes between Nick Clegg’s Liberal Democrats and his Conservative coalition partners.

In a further sign that the parties are diverging over economic policy ahead of the 2015 election, they both claimed the credit for the decision to raise the income tax threshold to £10,000 from next April.

However, Mr Clegg then challenged the Tories to go further by announcing a “workers’ bonus” in the Budget next spring, with a £10,500 personal allowance taking effect in April 2015, a month before the election.

George Osborne, the Chancellor, is thought likely to back the move – but the Liberal Democrats want to make sure they grab at least some of the credit and so put down an early marker. A £10,000 starting point for income tax was the Liberal Democrats’ flagship policy at the 2010 election, when David Cameron argued it was too expensive because the deficit had to be reduced. More recently, the Tories have started to claim ownership of the “tax cut” – to Mr Clegg’s irritation.

The Tories were annoyed by his intervention yesterday because the parties’ immediate task is to reach agreement on the Chancellor’s Autumn Statement on 5 December.

Mr Osborne is considering a series of measures to fight back against Labour’s campaign about the “cost of living crisis”. They include a virtual freeze on energy bills by switching some “green taxes” on to general taxation and action on fuel duty to keep down petrol prices. Mr Clegg said his £1bn plan to raise the personal allowance would be worth £100 a year to 24 million basic-rate taxpayers and would take about half a million people out of income tax altogether.

“As the recovery is finally taking hold I think it is very important that as many people as possible feel that they are benefiting from it. That’s why I call it a workers’ bonus,” he told the BBC. “Of course, I need to persuade my Conservative coalition partners.

“In the past the Conservatives have tended to have a different set of tax priorities – first inheritance tax cuts for very rich people, then a tax cut in the upper rate of income tax and now of course the married tax break,” he said.

A Tory spokesman said: “Increases in the personal allowance have helped hardworking people and it’s a Conservative Chancellor who introduced them.”

He added: "We always want to help people with lower taxes where we can - and we can consider future tax changes like this at next year's Budget. Of course, any tax changes have to be paid for - and consistent with the economic plan that is reducing the deficit and securing the recovery".