24 November 2008
The Adam Smith Institute (ASI) has today called on Alistair Darling to substantially raise the personal income tax allowance in today's pre-budget report. Author Tom Clougherty advocates a personal allowance of £12,000 – which is roughly equivalent to the minimum wage, or half the average wage.
As well as stimulating the economy by giving people more disposable income to spend and invest, raising the personal allowance to £12,000 would strengthen incentives to work, help to eliminate the 'benefits trap' and make low-paid jobs more economic – greatly increasing opportunities for the unemployed.
If the higher rate threshold were kept at its current level, rather than raised in line with the personal allowance, this policy would cost the Exchequer just £18.9bn in lost revenue.
The authors argue that such a sum could easily be offset by cutting government waste, and urge against further government borrowing, noting that the taxpayer already spends more than £30bn a year servicing government debt:
In the face of a recession, every business and household in the country is looking to find economies and make savings. There is no reason why government, with an annual budget in excess of £600bn, should be any different.
Tom Clougherty, the ASI's policy director, added:
Tax cuts are not a silver bullet, but there they are the most powerful, pro-growth policy tool that the government has available to them. The government is right to want to cut taxes: they should start by putting more money back in people's pockets, and this means radically increasing the personal allowance.
The full briefing paper can be downloaded for free at <http://www.adamsmith.org/images/pdf/personal-allowance-briefing.pdf>
Notes for Editors
WHY ALISTAIR DARLING SHOULD RAISE THE PERSONAL ALLOWANCE is published by the Adam Smith Institute, 23 Great Smith Street, London SW1P 3BL.