The Liberal Democrats have unveiled plans for £17 billion in income tax cuts, contingent on re-establishing closer ties with the European Union. Party leader Sir Ed Davey announced the proposals, which include raising the tax-free personal allowance from £12,570 to £15,000 and increasing the higher rate tax threshold. The party claims these measures would take 2.5 million people out of income tax altogether and save millions of taxpayers an estimated £680 annually.
Davey asserted that the economic growth required to fund these tax cuts could only be achieved by reversing Brexit and rejoining the EU's single market and customs union. "Fixing our relationship with Europe is the only way to get our economy back on track," he stated at the party's conference in Brighton. "Not just a customs union, but joining the single market too. Bringing down those barriers to trade. Breathing new life into our economy."
The party's proposals suggest that the tax cuts would primarily come into effect in the fifth year of the next parliament, potentially up to eight years away. The plan involves striking a deal with the EU in the first year of the next parliament, with tax cuts following a year later.
This announcement places Labour under pressure to outline its own tax policies. While the Liberal Democrats and the Conservatives are now promising tax reductions, Labour has been noted for raising the tax burden to a post-war record. The Conservative Party has criticized the Liberal Democrats' proposals, accusing them of advocating for a return to 2016 policies and underestimating the costs and loss of control associated with rejoining EU structures. Tory deputy leader Alex Burghart stated, "Ed Davey has forgotten that you have to pay for access to the Single Market and Customs Union, giving up control both of your borders and your trade policy as well as your cash."
Reform UK has also proposed tax cuts, suggesting they would be funded by reducing the welfare bill. The current government has maintained a freeze on the personal allowance, a policy known as 'fiscal drag', which has drawn criticism for increasing the tax burden on individuals through frozen thresholds. The Liberal Democrats argue their plan would reverse this trend and allow individuals to keep more of their earnings.
The economic backdrop for these proposals includes rising inflation, with figures showing a year-on-year increase to 3.1% in August, and forecasts for potential Bank of England rate hikes. Government borrowing costs have also reportedly reached a 28-year high.