Raise personal tax allowance to pounds 10,000, say LibDems

POLLUTION TAXES and a new "supertax" on the rich should be used to take more than 10 million low-earners out of the income tax system altogether, the Liberal Democrats said yesterday. The party unveiled its latest economic policy proposals with a pledge to raise personal allowances from just over pounds 4,000 to pounds 10,000 over the lifetime of two Parliaments.

In a policy document to go before next month's party conference, the Liberal Democrats also confirmed they would keep their election promise to impose one penny on income tax to fund improvements in education.

The key policy, to free millions of people from paying any income tax at all, would be funded by a pounds 30 billion package of tax reforms that the party described as its most radical to date. It would include a carbon tax on homes and businesses, and a new 50 per cent income tax rate for those earning more than pounds 100,000 a year.

Malcolm Bruce MP, Liberal Democrat Treasury spokesman, also announced that the party would prepare actively for British membership of the European single currency by reducing interest rates in stages to the level of our partners. He said there should be an early referendum on entry to the euro to allow business to plan for its adoption.

Compulsory second pensions would be introduced, and the Chancellor allowed to vary employees' contributions in accordance with the overall health of the economy.

The party would introduce a new Public Services Act to introduce performance- related pay for chief executives of all government departments.

Mr Bruce said the proposal to take 10 million people out of the tax system contrasted starkly with unfulfilled Tory and Labour promises to cut the basic rate to 20p or 10p for low earners. "We should allow people to earn much more before they pay tax. After the Second World War, a married man without children could earn almost 50 per cent of average earnings before paying income tax. Now (it is) only 25 per cent." The proposals would help the poor, have a "broadly neutral" impact on middle earners, and hit the rich who had been allowed to escape the system for years, Mr Bruce claimed.

The carbon tax would raise pounds 7 billion a year, but unlike the last government's imposition of VAT on fuel the money would go back into low earners' pockets rather into Treasury coffers.

"The last government gave environmental taxes a bad name. Our policy is designed to alter people's behaviour ,while the money raised is used to offset other taxes. I think it will make the introduction of environmental taxes much more acceptable if people can see the direct benefit," he added.