Ed Davey promises tax cuts for millions if UK rejoins EU single market

The Liberal Democrats will fight the next general election on a promise to cut taxes for millions of workers, Sir Ed Davey has said in a speech to his party conference.

The Lib Dem leader said that if he gained power, he would raise the annual tax-free personal allowance to £15,000.

He would also raise the 40p income tax threshold from £50,270 to £56,000, in a £17bn package funded by the economic boost he says would come from the UK rejoining the EU single market and customs union.

He claimed the plan would mean a £680 cut for “most taxpayers” but it would not come into full effect until the fifth year of a Lib Dem government – potentially up to eight years away.

The announcement was greeted with sustained applause by Lib Dem MPs and activists in the Brighton conference centre.

The £12,570 income tax allowance was frozen by the Conservatives in 2021, resulting in more people being dragged into paying the tax, and Labour has so far resisted calls from trade unions and some of its MPs to unfreeze it.

The Lib Dems said they would raise the threshold to £15,000 a year, and increase the starting point for paying employee National Insurance (NI) to the same level.

At their conference earlier this month, Reform UK promised to increase the income tax personal allowance to £15,000 within 100 days if they won power.

Sir Ed told the Lib Dem faithful “the difference between us and Reform” is that “their tax cut is paid for through cruelty.”

He said “Reform’s figures show they’d pay for it by ripping £22bn of crucial support away from disabled people.”

Explaining his pledge to raise the 40p income tax threshold, Sir Ed argued that more and more people were being dragged into a tax bracket that had originally been intended for higher earners.

“A tax band designed for stockbrokers is now holding back teachers and nurses” he said, adding: “That’s not fair, it’s not right.”

Under the Lib Dem plan, based on research by think tank Frontier Economics, external, the economic boost from rejoining the single market would allow the party to spend £17bn on tax cuts by the end of the next Parliament.

The party says it would unfreeze personal allowances in the second year of a Lib Dem government, allowing them to rise with inflation, before bringing in big tax cuts in year five when the economic benefits of closer trading with the EU had kicked in.

However, the move would depend on the party being able to negotiate a closer trading arrangement with the EU in just 12 months.

Stuart Adam, of the Institute for Fiscal Studies think tank, told BBC Verify the Lib Dem package would cost “much more” than the £17bn quoted by the party.

Reform has estimated that its policy, to raise the starting threshold to £15,000 just for income tax, would cost £21bn by the fifth year.

The Lib Dems say their policy would be funded by an extra £27bn from its plans for a “growth and defence pact” with the EU.