Nick Clegg to push for greater tax cut

Nick Clegg is to claim that people deserve a 'workers' bonus'. Picture: Robert Perry

Sources close to Clegg revealed the Liberal Democrats are demanding that the Conservatives find an extra £1 billion to raise the income tax allowance to £10,500 by 2015.

The figure is £500 more than agreed by the two parties, but Clegg is to claim that people deserve a “workers’ bonus”.

Increasing the personal allowance to £10,500 would remove a further £100 from the average income tax bill, the Lib Dems claim.

The Lib Dem demand comes as Chancellor George Osborne prepares to deliver his pre-Budget report on 5 December, the second most important finance statement of the year. Lib Dem figures say the further increase in the allowance should be agreed immediately.

Tensions between the coalition partners are mounting as they begin to set out their stalls for the 2015 general election.

Sources close to Clegg said last night that the increase in the personal allowance – which has gone up from £6,475 in 2010 to £10,000 by 2014-15 – was the Lib Dems’ “signature tune” in the coalition pact. “It was always our intention to get to the £10,000 and a £700 tax cut, but we believe the economic recovery allows us to put even more money back in people’s pockets. Because the economy is recovering, we want to reward people with a workers’ bonus,” the source said.

The extra tax cut would have to be paid for from current spending limits, the source added. “We know that we are on to a vote winner here.  The Tories once said this policy wasn’t affordable, but now they like to claim credit for it.”.

Clegg is expected to argue that the increase is a “reward” for people who have accepted below-average pay rises or flexible working hours to stay in work during the hard times.

The call will put the spotlight on coalition negotiations ahead of the pre-Budget report. It also follows the upbeat assessment of the UK economy by the Bank of England last week, which could give the green light for politicians to provide tax breaks.

The Lib Dems are now determined to ensure that the personal allowance increase is seen by the public as their key government policy.

Lib Dem figures say that Clegg will then go into the coming election campaign with a pledge to carry on  raising the allowance, up to the level of the full-time minimum wage – ensuring that those on the minimum wage effectively get paid tax-free.