Should the personal allowance be raised to £10,000?
Nick Clegg wants to see the personal allowance raised soon. But who will pay for such a tax cut?
The Deputy Prime Minister, Nick Clegg, has appealed to his colleagues to raise the personal allowance to £10,000.
The personal allowance is the amount of money you can earn before you begin paying income tax, and currently stands at £7,475. It is set to be increased to £8,105 later this year, with the coalition promising to raise it to £10,000 before the next election in 2015.
However, that’s not enough for Clegg, who wants to see the Government go “further and faster” in raising the threshold.
How much it would cost
It’s an appealing thought, earning an extra £1,500 or so before you have to start paying tax. The trouble is, someone has to pay for such a tax cut.
HM Revenue & Customs has said that for every £100 that the personal allowance is raised, it costs the treasury £490 million. Meanwhile, the Institute for Fiscal Studies (IFS) has said that bringing in the £10,000 threshold from 2015 will cost £4.1bn. Bringing that process forward could even double that cost, according to the IFS.
So yes, we’d all earn £1,500 a year extra before paying tax, but there’s a rather large tax revenue hole that the Treasury would need to fill. Perhaps we will see the Chancellor giveth with one hand, and taketh with the other...
So what do you think? Should the personal allowance be raised immediately, rather than by the end of this parliamentary term? And how should it be paid for? Let us know your views via the comment box below.