Millions of workers earning less than £10,000 a year could stop paying tax within two years under the centrepiece announcement of this year's Budget, the Chief Secretary to the Treasury suggests today.
In an interview with The Independent, Danny Alexander said he was close to agreeing proposals with George Osborne to go "further and faster" towards removing low earners from tax. He hinted that the measure could be paid for by toughening up tax breaks on the pension contributions of the highest earners and said that a tax loophole which allows multimillionaires to avoid paying stamp duty could be closed.
His comments were echoed by his party leader, Nick Clegg, who suggested that eventually a specific minimum rate of tax should be written into law to ensure people are "paying their fair share" and not "massaging" the system.
"I think it's time that we look at what I call a tycoon tax," he said. Speaking ahead of the Liberal Democrat spring conference in Gateshead, Mr Alexander said that the Budget negotiations had still not been concluded but he was optimistic that a deal could be done. "This [raising the tax threshold] is our priority," he said. "I'm proud of the progress that we've already made. We want to go further and faster on that in this year's Budget. We're not going to say what we'll do, but people in the party say, can we go faster, and my answer is yes we can."
Currently the Coalition is committed to a "longer-term policy objective" of raising the income tax threshold to £10,000. At the last Budget Mr Osborne announced that the personal allowance will rise by £630 to £8,105 this April, suggesting that the Government was intending to reach the £10,000 goal by 2015. Around 2.2 million taxpayers will stop paying tax as a result.
Mr Alexander's comments suggest the Coalition now intends to move more quickly. He also confirmed that the Liberal Democrats were likely to include a proposal in their next election manifesto that increases the personal allowance to £12,000 – ensuring that no full-time workers earning the minimum wage would pay any tax.
While he remained coy about how the measure might be paid for, he suggested that a tax on higher earner pension contributions and closing the stamp duty loophole which allows individuals to avoid the tax by buying properties through foreign-registered companies would be closed.
"In our election manifesto we set out a number of ways that we would seek to raise more revenue from the wealthiest," he said. "One of those areas was about taxation of property, where tax is dodged wholesale at the moment by the wealthiest, and the other was about tax relief on pension contributions, where we made the point that it was essential that there should be tax relief on pension contributions but that a larger share of that tax relief is going on those paying the top rate of tax.
"As a government we have already made some significant changes which come into place this year, which will reduce that tax rate by about £5bn in terms of reducing the lifetime allowance. We have already made some very good decisions in that area."
Mr Alexander also confirmed that he was "not ideologically wedded" to the 50p tax rate for those earning over £150,000 and suggested that the Government was in the "middle of discussions" on whether it should be scrapped.
Mr Osborne is thought to be in favour of the move, but Mr Cameron is worried that a pledge to abolish it would revive the image of the Tories as the "party of the rich". Mr Alexander suggested he would be happy to scrap the tax rate, but only if other measures were introduced to ensure that the wealthiest in society contributed more.
Meanwhile, Mr Clegg said that he was in favour of introducing new measure to ensure everyone paid a fair rate of tax – rather than a mansion tax."I think the principle of a mansion tax is a perfectly sensible one," he said. "[But] the overall approach to bearing down on avoidance, closing loopholes, making sure the wealthy pay more of their fair share than less — that is what is more important to me."