George Osborne has told Sky News he has been considering Nick Clegg’s plan to raise the tax threshold to £10,000 – but says he will not borrow money to fund it.
The Lib Dems secured a coalition commitment from the Conservatives to increase the personal allowance to £10,000 before the end of this Parliament.
The Chancellor said he was looking very carefully at the Deputy Prime Minister’s proposals, but made clear he was not prepared to borrow more money to pay for it in the Budget next month.
Speaking to Sky’s Dermot Murnaghan, Mr Osborne said: “I listen always – very seriously and carefully – to the Deputy Prime Minister and our coalition partners.
“We are a coalition and the Budget will be a coalition Budget.
“He knows, as I do, as the country knows, that any tax cut will have to be paid for.
That’s why we’ve got to give it to people at the bottom of the income scale and indeed we’re arguing strongly to take it away from people at the top with a wealth tax.
Former treasury minister, Lord Oakeshott
“In other words, there would have to be a tax rise somewhere else or a spending reduction.
“What we are not going to do in this Budget is borrow more money to either increase spending or cut taxes.”
But Mr Clegg wants to implement the plan sooner rather than later.
The allowance is due to increase from £7,475 to £8,105 in next month’s Budget. That willl leave taxpayers £126 a year better off, on average.
Increasing it to £10,000 would save taxpayers an average of £505 in tax next year.
Some families are set to lose their child tax credits after the next Budget.
George Osborne: ‘I listen always – very seriously and carefully – to the Deputy Prime Minister
Working mother Angela Teale will lose £70 a month in tax credits for her two children because she and her husband’s combined income is too high at £34,000.
The couple have lost five jobs between them since 2007 and she complains that the tax credit system was too slow to react to their changed circumstances.
Ms Teale told Sky News: “It feels like there’s no help out there. It feels like they just give us this (personal allowance increase) and take it away with this (cuts to tax credits).
“When my husband was unemployed and my husband tried to get tax credit there was nothing, there was no help for us.”
With unemployment at a 16-year high and expected to peak at 2.85 million this year, the Conservatives are expected to argue that employers should top the list for tax cuts.
Angela Teale says the tax credit system was too slow to react her changed circumstances
They are also unlikely to welcome the Lib Dems’ proposals on taxing the rich to fund tax cuts for the poor.
Former treasury minister Lord Oakeshott said: “What you’ve got to give in the way of tax cuts must go to people who are going to spend it.
“That’s why we’ve got to give it to people at the bottom of the income scale and indeed we’re arguing strongly to take it away from people at the top with a wealth tax.”
Labour has welcomed the Lib Dems’ request to increase the personal allowance but argues its proposed cut in VAT would be better for the economy.
The party’s deputy leader, Harriet Harman, said: “What’s actually happening in the economy is that it’s not growing, and unemployment is rising and that’s why the deficit is going up rather than down.
“So we want to see the Government producing a Budget for jobs and growth that will stimulate the economy and we think the best tax measure for doing that would be a cut in VAT.”