Budget 2012: Danny Alexander wants workers on £12,000 a year exempt from tax

DANNY Alexander yesterday insisted that his goal was to push the point where people pay no tax up to £12,000 as a furore broke out over the government’s controversial “granny tax”.

The government yesterday continued to face severe criticism over Chancellor George Osborne’s decision to freeze the personal tax allowance for over 65s to £10,500 and over 75s to £10,660 until the rate for those still working catches them up.

The decision represented a £3.3 billion tax grab on pensioners and will cost some up to £322.

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But yesterday Chief Treasury Secretary Mr Alexander, who managed to force an increase of £1,100 in the threshold to £9,205 for people in work, said his aim was to get the rate up to where those working full-time on the minimum wage would pay no income tax at all.

Currently, this would put the threshold at around £12,000. With the rate expected to rise to £10,000 by 2014, the Lib Dem minister offered the goal as a way of solving the granny tax debate, although he said that other measures, including a £5.30-a-week increase in the state pension, meant the impact of the change was small.

He said: “My ambition into the next parliament is to get to a personal allowance that is at the level of the minimum wage. I would like us to get to a position as a country where no-one has to pay tax unless they earn more than the minimum wage. I’m thinking about that as a key pledge for the Liberal Democrats at the next general election.”

Asked if he had upset grannies, he said: “I think the announcement that we made yesterday is fair. It is as the Chancellor rightly said a significant simplification of the tax system, which has been suggested to us by a range of organisations.”

He went on: “This is the right time to be aligning those allowances, there are no cash losers in this and you have to see it in the context of the other announcements that we have made for pensioners.”

Mr Alexander also said that measures on localising public-sector pay would not affect the Scottish block grant.

“It will still be set by the Barnett formula,” he said. He added some cities like Aberdeen could see a rise in wages as a result of the review.

Mr Alexander also accused the SNP of “caving in” over its demands for new tax powers in the Scotland Bill, which the governments in Westminster and Holyrood have agreed.

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