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Tax allowance raise

Northern Isles MP Alistair Carmichael.

NORTHERN Isles MP Alistair Carmichael has hailed news that workers’ tax-free allowance will be extended to £10,500 next April.

The announcement, which will benefit nearly 18,000 people in Shetland and Orkney, was contained in Chancellor George Osborne’s budget speech at the House of Commons on Wednesday.

Carmichael said that when the Tory-Lib Dem coalition government took power four years ago people were only able to earn £6,495 before beginning to pay the 20p basic rate of income tax – resulting in an average saving of £800 since May 2010.

Opponents of the policy have pointed out that those earning £8,000 a year – one in six UK workers, according to the Institute for Fiscal Studies – will make no gain from the latest increase in the threshold.

Carmichael said: “I am delighted that this tax cut will be able to help so many people in Orkney and Shetland, by putting money back in their pockets.

“The significance of this policy is immense. It is a tax cut that disproportionately helps people on low incomes.”

However some think tanks have questioned the policy’s redistributive credentials. While it gives more than 26 million taxpayers a cut, those earning between £30,000 and £40,000 benefit just as much as those on lower incomes.

Labour MPs claim the policy ought to be viewed in tandem with other taxation measures such as the rise in VAT from 17.5 per cent to 20 per cent. The opposition estimates the VAT rise alone has cost the average family around £1,350 a year since 2010.

During his speech Osborne pronounced himself “incredibly proud” of raising the income tax allowance.

But Carmichael pointed out that the policy featured on the front page of his party’s 2010 manifesto and would not have been delivered without the Liberal Democrats’ presence in government.

He said: “This tax cut is the real budget boost for working people and would not have happened without Liberal Democrats in government creating a stronger economy and a fairer society.”

Carmichael also welcomed measures including a freeze on duty for Scotch whisky and action to increase investment in the oil and gas industry.