As Liberal Democrats build our manifesto for 2015, one key policy is already being promoted as a flagship measure – continuing to raise the income tax personal allowance to £12,500. While there’s little doubt that raising it to £10,000 in this Parliament was a significant, liberal and popular achievement, we should proceed with caution in going yet further – particularly in light of the often-unwelcome consequences and alternative options, as set out in an pubs/making-allowances.pdf">excellent CentreForum paper by Adam Corlett. This paper is a significant contribution to a much-needed discussion on the costs, benefits and alternatives to what many in the party assume is a done deal on tax thresholds – it is right and proper that we subject all policy to real scrutiny. Few would disagree that taxation should be fair, and that the lowest earners should shoulder as little of the strain as possible. But in lifting the income tax threshold yet further, we should ask three key questions that ought to apply to virtually any tax policy:
- Do the lowest earners in fact stand to benefit at all? Where does the benefit of a higher personal allowance accrue?
- Tax cuts have to be weighed up against the costs in terms of further public spending cuts or higher taxes elsewhere needed to fund them – what is the trade-off required to achieve a £12,500 allowance?
- If the aim is to lift low earners out of tax, what alternative measures are better?