Raising the personal allowance: in cooperation or in competition with the Lib Dems?

By Peter Hoskin
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Looking back on last week, it sure was a significant one for the debate about tax. On Wednesday, we saw David Cameron attacking Labour for abolishing the 10p tax rate – a hint, perhaps, that this coalition government would restore it. But then, on Thursday, when Ed Miliband backed the reinstatement of the 10p tax rate himself, CCHQ suddenly began comparing it unfavourably to the Coalition’s own policy of raising the personal allowance. The argument they’re putting forward is basically the same as Nick Clegg’s “Labour is now talking about a 10p tax rate – we’re delivering a 0p tax rate”.

This enthusiasm for raising the personal allowance reached a new peak last night, with Grant Shapps’ appearance on John Pienaar’s radio show. The Tory chairman didn’t just big up the Coalition’s plans for raising the threshold to £10,000; he suggested that more might be done:

“We’ve already said that we want to get it up to £10,000 and I don’t think I’d be revealing too much to say that our ambition might be to get it higher. I certainly think taking people out of tax entirely is the most efficient best way to do this.”

The FT’s Kiran Stacey, who was also on Pienaar’s show, has interpreted this as meaning that the policy could be included in the next Tory manifesto. And, from there, he wonders whether this would be an act of aggression against the Lib Dems—who want to go into the next election with their own proposal to raise the threshold to £12,500—or an offering with which to secure another coalition.

But there’s another possibility, and one which Mr Shapps’s words don’t seem to rule out: George Osborne could deliver a higher threshold than £10,000 during the lifetime of this coalition government, in cooperation with the Lib Dems. After all, the threshold is already set to rise to £9,440 from April this year. This is, in the Chancellor’s words, within “touching distance” of the £10,000 target – and gives the Treasury two years to take it further, provided the public finances can bear it.

Yet while this would be the Coalition at its most coalicious, it still wouldn’t negate the potential for mutual spikiness around the next election. As Jill Kirby pointed out on ConservativeHome last year, there’s a battle to be had over the authorship of the policy. And there’s still the question of what would then be recommended in the two parties’ manifestoes. £13,000? £14,000? £15,000? Or to infinity and beyond?