Cameron's tax cuts welcome, but not as generous as they might seem

Responding to the Prime Minister's speech today on his taxation policies in a potential second term, Jonathan Isaby, Chief Executive of the TaxPayers' Alliance, said:

"The Prime Minister is right to commit to lowering taxes on hard-working people and all leaders should be looking to make similar pledges. However, Mr. Cameron's commitments aren't quite as generous as they first seem: he is not planning to raise the 40p threshold quickly enough to keep pace with inflation and, while a further increase in the Personal Allowance would be welcome, he has said nothing about what he would do with National Insurance which is a second income tax in all but name.

"However, those who will decry these announcements as 'unfunded' tax cuts are missing the point. Money doesn't belong to the government - it belongs to individuals. Cutting taxes simply means the government has less money to spend - at least in the short term - and all parties need to get on with telling the public how they'll reduce public spending and balance the books."

Rory Meakin, Research Fellow at the TaxPayers' Alliance, analysed the impact of the Prime Minister's tax commitments when they were first announced in October. Rory demonstrates that the increase in the 40p threshold will not keep pace with inflation, and will also see many that are "saved" from the higher rate hit by a higher National Insurance rate. At the lower end, the increase in the Personal Allowance is slightly more generous, outstripping inflation by around £200 over the course of the Parliament. Of course, the National Insurance threshold remains far lower, at £149 / week (approx £7,748 per annum) in 2013/14.