A future Conservative government will increase the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020, David Cameron has announced.
Paul Johnson, director of the Institute for Fiscal Studies, told the BBC that the income tax cuts would cost £7bn, more than double the amount of welfare savings announced by George Osborne on Monday.
Finance Act 2014 increased the personal allowance to £10,500 for 2015/16. The higher rate threshold – the sum of the personal allowance and the basic rate limit – is currently £41,865 and is set to rise to £42,285 for 2015/16.
The prime minister, addressing the Conservative party conference, said: “Once you have a job, I want you to take home more of your own money. If you put in, you should get out – not hand so much of it to the taxman.
“That’s why these past four years, despite everything, I’ve made sure we provide some relief to taxpayers in our country – especially the poorest. No income tax until you earn £10,000 a year – and from next April, £10,500 a year …”
A future Conservative Government will raise the tax-free personal allowance from £10,500 to £12,500, he said.
“That will take 1m more of the lowest paid workers out of income tax – and will give a tax cut to 30m more. So with us, if you work 30 hours a week on minimum wage, you will pay no income tax at all. Nothing. Zero. Zilch.”
‘I want to bring back some fairness’
“The 40p tax rate was only supposed to be paid by the most well-off people in our country,” Cameron said. “But in the past couple of decades, far too many have been dragged into it: teachers, police officers …
“I want to take action that’s long overdue, and bring back some fairness to tax. With a Conservative government, we will raise the threshold at which people pay the 40p rate. It’s currently £41,900 – in the next Parliament we will raise it to £50,000.”
A £50,000 threshold would pull “hundreds of thousands” out of the teeth of the higher rate “trap”, said Simon Gompertz , the BBC’s personal finance correspondent. “But as with all tax measures, it will be vital to watch how they are implemented. The longer it takes to bring them in, the less they are worth.”
Cameron told the conference that companies were “coming from all over the world to invest and create jobs here”.
“That’s not happened by accident,” he said. “It’s because they see a government rolling out the red carpet for them, cutting their red tape, cutting their taxes. So here is a commitment: with the next Conservative Government – we will always have the most competitive corporate taxes in the G20. Lower than Germany, lower than Japan, lower than the United States."
John Cridland, CBI director-general, said: "A job is the best route to prosperity and business supports stronger incentives for people to get a job and get on in work.
"At the same time, we need more investment to create more jobs, so pledging to keep the UK corporate tax rate the most competitive in the G20 will send out a clear positive signal to businesses.”
Andy Chamberlain, senior public affairs manager at the Association of Independent Professionals and the Self Employed (IPSE, formerly PCG), said Cameron’s commitment to lower personal and business taxes would help to create an environment “conducive to enterprise”.
The Guardian quoted Frances O'Grady, TUC general secretary, as saying that the chancellor on Monday had “promised to take cash from the working poor to pay for tax breaks for the richest pensioners”.
She added: “The prime minister’s tax plan is all about help for the better off. Raising the personal allowance and the higher rate tax threshold both help those well above poverty levels.”
Danny Alexander, the Liberal Democrat chief secretary to the Treasury, accused the Conservatives of a “shameless attempt to copy” Liberal Democrat policy.
“The Conservatives opposed increases to the tax threshold at the last election. The big tax cuts for 25m working people in this Parliament have only been delivered because of the determination and commitment of Liberal Democrats to fight for them every day,” he said.
The plan to increase the higher rate threshold to £50,000 “means that the working-age poor are being asked to fund a tax cut that is four times greater for higher rate taxpayers than for basic rate taxpayers”.