Under the last Labour Government, Britain experienced its worst recession since the Great Depression of the 1930s and was left with the largest deficit in our peacetime history.
This Government has taken tough but necessary decisions to cut the deficit. As a result, our economy is now recovering faster than any other advanced economy and unemployment is falling faster than at any time since records began.
But many families aren’t feeling the recovery yet in terms of their personal finances.
To make sure that they do, government needs to do two things:
- first, carry on reducing the deficit - if we go back to borrowing more, as Labour suggest, interest rates will rise and anyone with a mortgage will be much worse off; and
- second, take less of people’s income in tax.
This isn’t just the right thing to do at the moment when people are struggling with the cost of living - it’s the right thing to do in principle. As a Conservative, I believe in well-funded public services, but I also believe it is wrong for the government to take too much of the money we work hard to earn - particularly from those who don’t earn very much.
When Labour left office in 2010, the personal allowance – the amount of money you can earn before you start paying income tax – was just £6,475. This meant that someone earning £10,000 a year had to pay more than £700 of that money to the Government in income tax. And Labour call themselves the party for the less well-off!
We’ve increased the personal allowance to £10,000. As a result, three million low-paid people no longer have to pay a penny of income tax - and 25 million more people have seen their tax bill cut by up to £700.
We’ve already said that in April we will further increase the personal allowance to £10,500. Yesterday the Prime Minister announced that if we win the next Election, we will go further:
“I can tell you now that a future Conservative Government will raise the tax-free personal allowance from £10,500 to £12,500 ... So with us, if you work 30 hours a week on minimum wage, you will pay no income tax at all. Nothing. Zero. Zilch*.
“ … But we will do something else. The 40p tax rate was only supposed to be paid by the most well-off people in our country, but in the past couple of decades far too many have been dragged into it: teachers, police officers ... The threshold … is currently £41,900. In the next Parliament we will raise it to £50,000”.
Raising the personal allowance to £12,500 will take 1 million more of the lowest paid workers out of income tax and will give a tax cut of up to £400 to 30 million more.
Increasing the Higher Rate Threshold to £50,000 will lift around 800,000 people out of paying the 40% marginal rate.
On tax, the choice at the next Election is clear. Higher tax under Labour, lower tax under the Conservatives.
* This assumes that the minimum wage continues to increase by more than inflation to £8 an hour by 2020 (it’s worth noting in passing that when Ed Miliband announced he would increase the minimum wage to £8 an hour by 2020, all he was doing was promising to continue this Government's policy).