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David Cameron is about to get to his feet and announce the beginning of what is expected to be three Tory tax cuts.

By reducing public spending growth to +1% in 2009/10 (excepting the four protected priorities of health, education, international development and defence) the Conservatives believe they can save £5bn compared to Labour’s spending plans.

£4.2bn of this will be used to abolish the basic rate of tax on savings (£2.6bn) and to raise pensioners’ personal allowance by £2,000 (£1.5bn).

The Tory Treasury team gives an example of how this would benefit older savers:

"A 70 year old couple who are retired and have total pension income of £14,000 a year each. They currently pay £902 in income tax each, or £1,804 in total. Their tax bill on their pensions would fall to just £502 each, or £1,004 in total, so they would be £400 a year better off each, or £800 better off in total. If they also currently get £1,000 a year each in interest from their savings account, they would pay £200 less each in tax on savings, or £400 in total. So in total they would be £1,200 better off."

The relief for savers fits into an emerging Tory narrative of rewarding people who do the right thing.

Up until today only the NHS and international development were identified as Tory spending priorities.  They have now been joined by defence and schools – both of which are also prioritised by grassroots members.

1pm: David Cameron’s speech in full.

5.30pm: Video highlights of David Cameron’s remarks.

75 comments for: Conservatives announce £4.2bn tax cut for savers

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