Tory £500 tax break plan sparks row with Lib Dems

David Cameron: We cannot afford it he said in 2010. Picture: PA

Increasing the point where people start to pay income tax is seen as a key policy in the “cost of living” debate which looks set to be the main batteground for the 2015 general election.

Labour has promised to reintroduce the 10p tax rate for lower earners, but the coalition has already raised the threshold to £10,000.

The £10,000 threshold policy was in the Liberal Democrat manifesto, but both coalition partners have been trying to claim credit for introducing it.

It was reported yesterday that senior Conservative politicans were drawing up plans to raise the allowance to £12,500 as part of their manifesto for the next general election.

This would mean workers who earn more than £12,500 could keep an extra £500 of their money when worked out against the basic rate of income tax of 20p in the pound – a rate they currently pay at £10,000.

A senior Tory reportedly said: “We will have to see if the numbers add up nearer to the election but, of course, we are very keen to do it.”

A Cabinet source told a newspaper that the policy would be pushed through in 2015 and would allow the party to to answer Labour’s plans to freeze energy prices for 18 months.

Mr Cameron hinted in his conference speech that he wanted to do more with the personal tax threshold, after celebrating the way that 25 million people had received a tax cut by raising it to £10,000.

But that has sparked a row with the Lib Dems. Chief Treasury Secretary Danny Alexander said yesterday the Conservatives had stolen the policy from his party.

Mr Alexander signalled his intention to increase the threshold to £12,500 last year, so that anybody working full-time on the minimum wage would not have to pay income tax.

The Lib Dems pointed out that during the leaders debates in the 2010 general election, Mr Cameron had said to Nick Clegg: “I would love to take everyone out of their first £10,000 of income tax, Nick… we cannot afford it”.

Yesterday, Mr Alexander said: “The Conservatives may claim to be the party of hardworking people. But the same cannot be said for their policy wonks.

“The Conservatives are apparently considering a proposal for their manifesto to increase the personal allowance to £12,500 – an almost identical idea to our own policy of raising the personal allowance to the minimum wage that we first passed in our spring conference of 2012 and reaffirmed just a month ago at our autumn conference in Glasgow.

“Once again, it is the Liberal Democrats who are shaping the future of the British tax system.”

Mr Alexander added: “When it comes to the general election, there will only be one party with a track record of promising tax cuts on the front page of their manifesto and delivering them to the pockets of low and middle income families up and down the country. That is the Liberal Democrats.”

Yesterday, a source close to Tory Chancellor George Osborne said that he was “unaware” of any discussion on raising the tax threshold and it was not yet party policy.

• Leaders: Energy price blame war must end

• David Maddox: Labour is sailing into deep water

The Scotsman Conferences is hosting a series of events capturing the many facets of the Scottish independence debate. 3 December sees a formidable line up of expert speakers tackle “The Independence White Paper: A Business Plan for Scotland?” For more details on this and other great events please visit www.scotsmanconferences.com