Liberal Democrat shadow chancellor Vince Cable has backed plans to increase the income tax threshold to £10,000.
The party said this would cut the ‘average person’s’ income tax bill by £700, pensions would be £100 better off and 3.6m people would no longer have to pay any income tax at all.
The party said its tax plans would be paid for by closing tax loopholes, making polluters pay and introducing a ‘mansion tax’ on homes worth over £2m.
“It is right to ask those with the broadest shoulders to bear a little more of the burden so that millions of people on normal earnings get the break they need,” said Cable.
“We all know that the country is in for some tough times ahead, but we believe that it is simply not possible to address the problem of an unsustainable budget deficit without parallel action to rebalance the tax system and eliminate the unfairness at its core.”
However, economic forecasters say the government will have to increase income tax if it’s to make any progress towards its goal of halving the public deficit in the next four years. The Institute of Fiscal Studies says Britain will have to add 3p to income tax or the equivalent.
Economist Michael Saunders, of Citigroup, told the Daily Mail that other European countries with huge deficits including Greece, Italy, Portugal, Ireland and Spain are all taking much tougher action than Britain. "Very few countries face a bigger fiscal challenge.
"The UK's existing fiscal consolidation plans lack credible detail and are far less aggressive than other high- deficit countries," he said.
Prepare for the 2010 Budget with AccountingWEB.co.uk
As we enter one of the most volatile periods for tax and financial planning in recent memory, AccountingWEB.co.uk is putting in place a comprehensive package of Budget 2010 coverage leading up to 24 March and in the week after. Plan your own Budget campaign with the following AccountingWEB facilities:
- Budget 2010 previews and coverage – sponsored by Sage
- Budget tax predictions from AccountingWEB.co.uk members
- Budget 2010 wishlist poll – which is the most popular measure?
- Budget day: live speech commentary, at-a-glance guide and Rebecca Benneyworth’s live Budget lecture (2-4pm on Wed 24 March)
- Tax Essentials 2 Last minute year-end planning guide
- Sage Sweepstake - a chance to win a coveted Apple iPad.