Tax cuts: giving with one hand and taking with another

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a man rising coins

The Tories and Lib Dems are battling it over whose idea it was to raise the personal allowance threshold, but whoever came up with it first is irrelevant in light of one key question.

Lib Dem leader and deputy prime minister Nick Clegg has said he wants his coalition buddies to agree an income tax cut of £100 a year.


Although the government had consistently increased the personal allowance, cutting the amount of income tax we all pay, Clegg wants to push the threshold from £10,000 in 2014/15 tax year to £10,500 from 2015.

This is working towards his party's long term goal of a £12,500 personal allowance, which takes those earning minim wage out of income tax altogether.

Of course, it's not the first time we've seen the £12,500 figure bandied about - the Tories have recently said they want to raise the personal allowance to this level. The Lib Dems are pretty upset and are, behind closed doors, accusing their coalition partners if band wagon jumping and trying to score political points while simultaneously introducing an income tax cut for richest earning £150,000 or more a year.

Whoever thought of the idea first doesn't matter because neither party has answered the most crucial of questions: how are you going to pay for it?

An increase in personal allowance to £10,500 would cost the Treasury £1 billion alone.

Clegg had moaned that he wants a mansion tax to pay for it but the Tories have out the lid on that idea. And both parties have made it clear that the cost of a personal allowance increase must be paid for elsewhere.

Clegg said he'll find another way to pay for it but coming from the party that promised to cut the cost of education which promptly shot up when it grasped a scintilla of power, I wouldn't expect much.

The point is the coalition will not tax the super rich, through a mansion tax it anything else because they're all Conservative party members and a small group of people.

It's much easier to tax a large group of people a little bit each - starting with the middle classes, or as they're now known, the squeezed middle.

The problem for this group of people is that they are likely candidates for a squeeze elsewhere in order to pay for headline grabbing tax tinkering.

So before you rush out to spend any potential income tax windfall, have a think on what part of your budget that may come from.

Tax tricks to improve your wealth

Tax tricks to improve your wealth