Clegg calls for £10,500 tax-free allowance

The head of financial planning for Bristol-based Hargreaves Lansdown, agreed that Nick Clegg’s proposal to see the personal allowance rise far more than the current scheduled increase (up to £10,000) could make the system simpler.

However, Mr Cox warned that it could also have the unintended consequence of excluding millions of people from auto-enrolment.

He said: “There is the potential risk of auto-enrolment exclusion. The current earnings threshold for auto-enrolment is set in line with the personal allowance, which means anyone earning in excess of £9440 is currently eligible for auto-enrolment.

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“A potential risk of increasing the personal allowance, which in itself is a good thing, is that it could exclude many more people from participating in workplace pensions.”

Hargreaves Lansdown has estimated that raising the allowance from £9,440 to £12,500 could exclude as many as 3m people from being automatically enrolled into a workplace pension.

This followed an interview with the BBC, in which Mr Clegg said he wanted the coalition government to commit to raising the personal allowance from £9,440 to £10,500 from April 2014 to encourage savers and help people shelter from the taxman. Mr Clegg also said the government’s stated longer-term aim to increase the personal allowance to £12,500 supported a larger rise now.

Commenting afterwards Mr Clegg said it was essential to help people living in financial hardship.