Danny Alexander says tax changes now in force will 'make work pay'

Chief Secretary to the Treasury Danny Alexander says the so-called "Tycoon Tax" clamps down on tax reliefs claimed by the rich

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Income tax changes that have come into effect will help make work pay, Chief Secretary to the Treasury Danny Alexander has said.

The Lib Dem minister said an increase in the personal allowance to £9,440 would benefit "people working hard on ordinary incomes".

But Shadow Chancellor Ed Balls called the changes a "giveaway" for the rich.

The top rate of income tax will drop from 50p in the pound to 45p for people with incomes of more than £150,000.

Labour's Mr Balls said that as a result of the changes, working families would be up to £4,000 worse off, while millionaires got average tax cuts of £100,000.

Mr Balls says the prime minister and chancellor are out of touch with the lives of ordinary families

On Radio 4's Today programme he asked if it was right at a time when "all families are worse off, for the priority for the government not to change course on the economy, but to give a tax giveaway on this scale to people on the highest earnings?"

But Mr Alexander countered, saying the coalition government "is working hard to help those on low and middle incomes."

He added: "We think it's important that we make work pay, that we reward people who are working hard on ordinary incomes and that is what the increase in the personal allowance will do.

"The wealthy are paying more in every year of this government than they did during the entire period Labour was in office."

Prime Minster David Cameron tweeted: "From today 24 million people will be paying £600 less income tax than in 2010".

His message also included a link to a new Conservative poster outlining the change with the headline "Help for Hardworking People".

And Labour has launched its own poster - with the slogan "Who Wants to Bung a Millionaire? Dave Does" - claiming the coalition's reforms mean high earners are benefiting while millions are now worse off.

Composite of the Conservative and Labour photos Labour (bottom) and the Conservatives (top) have released posters about tax
Pension rise

Also from 6 April, the amount pensioners can earn without paying tax will no longer rise with inflation, giving rise to accusations of a "granny tax".

The tax allowance level for people aged 65 and older has instead been frozen at £10,500.

For almost everyone else the amount people can earn before paying income tax has risen to £9,440, leaving an extra £267 a year in the pockets of millions of basic rate taxpayers.

Mr Alexander said the changes represented "a big step" towards delivering the Liberal Democrats' manifesto commitment of a £10,000 personal allowance.

However, the chancellor paid for this cut in part by bringing down the threshold for 40% tax to £41,450 (including the personal allowance of £9,440). This would add 400,000 people to that tax band.

Meanwhile, most tax credits and working age benefits, including Jobseeker's Allowance, are being increased by 1% - below the rate of inflation.

Pensioners get a larger rise in the state pension, which goes up by 2.5% to £110 a week.

Child benefit has been frozen for a third year.

Income tax changes

The changes to income tax coming into effect on 6 April include:

  • A cut in tax rate from 50% to 45% for those earning more than £150,000
  • The 40% tax rate now starts at an income of £41,450. Previously it was £42,475
  • An increase in the tax-free personal allowance to £9,440, from £8,105
  • The amount of tax-free income pensioners can earn remaining frozen at £10,500

The reduction in the top rate of income tax sparked a political row when it was first announced last year.

Labour said the coalition government was giving an unfair tax cut to the richest people in the country, while the Conservatives said the 50% level damaged UK growth and competitiveness, making Britain a less attractive place for overseas investment.

Mr Balls said claims that the 50 pence rate of tax brought in very small additional amounts of income compared to the 45 pence rate were without solid foundation.

"We don't have any evidence to base that assertion on and I think it was really reckless of the government a year ago to announce its tax cut before they had the evidence for 2011-12, which would have given us a clearer picture and that's never been published," he said.

Mr Alexander claimed Mr Balls was showing "fake outrage" and said additional measures introduced by the government "led by the Liberal Democrats", including the so-called "Tycoon Tax" would ensure the rich were paying more than at any time under the Labour government.

The "Tycoon tax" introduced in last month's Budget imposed a limit on the amount of tax relief people can claim by investing in business or donating to charity.

Labour says the freezing of the tax allowance for pensioners is an unfair attack on elderly people. The Conservatives counter that the allowance level remains higher than for people of working age, and that the government has increased the state pension by more than the former Labour government had planned.

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