We are currently going through the annual Party Conference season, with the Liberal Deomcrats currently finishing their conference. Whilst I personally find much of the conference season quite dull, it is a good time to see some of the policy suggestions eminating from the grassroots and seeing how much traction they gain.

I personally have been taken by a suggestion that in itself is nothing new – in fact, it has been floated around in a number of places before now – but which seems very practical and universally beneficial given the current economic situation. The proposal? To raise the Personal Tax Allowance to £10,000.

Currently, the Personal Tax Allowance for 2009-10 sits at £6,475. People do not pay income tax unless they earn over this amount in the financial year. Once they hit this marker, they start paying the basic rate of tax which, since the abolition of the 10p tax rate, sits at 20%. By raising the Personal Tax Allowance, anyone who earns more than £6,475 would be better off. Anyone earning over £10,000 a year would be, according to my calculations, £705 better off through such a tax cut.

Now, I know what some people are thinking – how would it be funded? Well, according to the Office of National Statistics, there are 28,891,000 people in employment in the United Kingdom at the moment. Assuming everyone benefits from this, and nothing else is put in place to offset this tax cut, the cost, according to my calculations, would be £20.38 billion. So, scrap Trident and I.D. cards and you go quite some way towards paying for such a tax cut. Trident has been estimated as costing anything up to £120 billion to replace over a 30-year period, thus costing up to £4 billion a year. I.D. cards themselves have been estimated to cost £18 billion, and so scrapping these two schemes would save a good deal of the money required to make such a cut work.

In order to make this work, you would, in all likelihood, need to raise taxes somewhere else. One option would be to lower the Higher Rate of tax slightly in order to re-coup the money. By reducing the Higher Rate of tax from £37,400 to £35,750, you would negate much of the impact of the tax cut on higher earners, but at the same time, avoid raising the level of income tax paid by higher earners (and also minimising the cost to the Treasury). Thus, everyone would experience a tax cut, but it would be targeted specifically at those people earning less than £35,750, and would represent a significant tax break to the very lowest earners.

I would argue this to be of particular importance given the current economic climate. Why? Because work doesn’t always pay. We hear policy after policy about taking benefits away from the unemployed, but little about truly making work pay. But it is in our interests to make work pay now. The more people we have working, the less people we have on benefits, the we pay out, the more tax we collect, the more we have to spend on real public services when money is exceptionally tight. That can’t be mad. Moreover, we provide an incentive to work. Can you bloame people on piss-poor wages for not working when working leaves them with very little extra in their pockets? I don’t. But give them a higher Personal Tax Allowance, show them they will have more money in their pockets – £60 per month – and maybe it will provide that little incentive. £13 a week doesn’t sound like much, but £705 a year soon adds up.

Footnote: I am not a tax expert, but I do have basic maths skills. My calculations make no account for Tax Credits, as I just don’t understand them well enough. But you get the idea. Let the tax boffins work out the absolute finer details of the exact numbers – they can’t be too far off.