Lib Dems propose raising income tax threshold to £12,500

The Liberal Democrats said that it is their “aspiration” for those paying the minimum wage to be exempt from income tax

The Liberal Democrats have proposed raising the personal allowance – the amount at which income tax starts being paid – to £12,500.

The threshold had already been raised by £1,000 to £7,475 in April 2011 (for the 2011-12) financial year, and will increase to £8,105 in April 2012 (2012-13 financial year) under the government’s 2011 Budget.

The average worker is currently paying £200 less income tax than last year, which will fall by a further £120 next year. “By the end of this Parliament, most working people will be paying £700 less income tax a year,” said Danny Alexander, Lib Dem chief secretary to the Treasury.

“In the next Parliament, I want us to go further; our aspiration should be that someone working full time on the minimum wage should pay no income tax at all,” Alexander said, speaking at Liberal Democrat Autumn Conference on 18 September.

“An income tax threshold of £12,500 - think what that would do to work incentives, think what it would mean for basic fairness. Let’s put that on the front page of our next manifesto,” he said.

The government aims to collect an extra £7bn a year by the end of the Parliament, and Alexander said that they are on track to raise £2bn this year through their efforts to fight tax evasion.

"My message to the small minority who don't pay what they owe is simple – I agree with the chancellor. We will find you and your money and you will pay your fair share," he said.

The Treasury aims to recruit some 2,250 new tax inspectors to crack down on tax avoidance by the wealthiest 350,000 people in the UK. “We need to make sure tax owed is tax paid,” Alexander said.

"Some people have argued that we should change our tax priorities and focus our limited resources on cutting taxes for the wealthiest instead. At a time of austerity, this argument simply beggars belief. If we are all in this together, those with the broadest shoulders must bear the greatest burden.”

“Fair taxation of the wealthiest is key to our deficit reduction plan. Of course, if a better way can be found to raise the money from this group, I will be willing to consider it. But right now we must focus relentlessly on those who are struggling,” Alexander said.