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‘Tax threshold rise will not encourage savings’
Plans to increase the income tax threshold for people on lower incomes would do little to address the savings gap, an adviser has warned.
Responding to calls from deputy prime minister Nick Clegg to raise the personal tax allowance to £10,000, Keith Iles, director of Middlesex-based The JHC Partnership, said people would put any extra income towards their everyday cash expenditure.
Mr Iles said: “In terms of the tax advantages, I think it would just go to a person’s cash flow. I am not sure these extra funds would go into savings. It would just help cash flow and help those on low incomes to survive.
“There is a strong possibility that we will have a generation that will not save.”
In a speech to the Resolution Foundation, Mr Clegg said: “Household budgets are approaching a state of emergency, and the Government needs a rapid response.
“Delivering the £10,000 personal allowance more quickly will need to be fully funded. We cannot just cut taxes by raising borrowing – that is just extra taxation deferred – and it would undermine our success in restoring stability and credibility to the public finances. So we need to find the money and that will not be easy, of course.
“But to those who say we cannot afford to do this. I say we cannot afford not to do this. It is because of the pressure our economy is under that there is now an urgent need to give families more help. An urgent need to rebalance our tax system so it rewards work and encourages ordinary people to drive growth, and that means those who are better off paying their fair share.”
