The Liberal Democrats, led by Sir Ed Davey, have announced plans to cut taxes for millions of workers if they win the next general election. In a speech at the party conference, Davey stated that he would raise the annual tax-free personal allowance to £15,000 and increase the 40p income tax threshold from £50,270 to £56,000. This proposal is part of a £17 billion package that Davey claims would be funded by the economic benefits of the UK rejoining the EU single market and customs union.
Davey indicated that the plan would result in a £680 tax cut for most taxpayers, although it would not take full effect until the fifth year of a potential Liberal Democrat government. The current income tax allowance of £12,570 was frozen by the Conservative government in 2021, leading to more individuals paying income tax. The Liberal Democrats aim to unfreeze this allowance and raise the starting point for employee National Insurance to £15,000 as well.
At the conference, Davey criticized Reform UK’s tax proposals, claiming they would fund their tax cuts by reducing support for disabled individuals. He emphasized that the current tax band is unfairly affecting workers such as teachers and nurses. The Liberal Democrats plan to implement their tax cuts based on research from Frontier Economics, which suggests that rejoining the single market would provide sufficient economic growth to support these changes.
However, the success of this plan hinges on the party's ability to negotiate a closer trading arrangement with the EU within 12 months. Stuart Adam from the Institute for Fiscal Studies noted that the cost of the proposed tax cuts would likely exceed the £17 billion estimate provided by the Liberal Democrats.
Davey also addressed the political landscape, criticizing Conservative leader Kemi Badenoch and Prime Minister Andy Burnham for their policies. He ruled out a coalition with Reform UK and indicated that the Liberal Democrats would seek to maximize their number of MPs in the upcoming election. Additionally, he raised concerns about the potential threats posed by artificial intelligence, calling for a global treaty to manage its development responsibly.