Nick Clegg is planning to push his "workers' bonus" in a speech tonight, promising to raise the starting threshold for income tax to £12,500 in the next Parliament in a bid to help the poorest.
Speaking at Mansion House, he will urge George Osborne to raise the personal allowance above £10,000 next month in his Budget, with the Liberal Democrats keen to take it even further.
Clegg will say: “That will be the main item Danny and I push for in the Budget – again. In the next parliament we would raise the personal allowance so that no one pays any income tax on the first £12,500 they earn."
But as the respected Institute for Fiscal Studies showed in their recent Green Budget publication, just 15% of the gains from increasing the personal allowance would benefit the poorest half of Britons.
"There are better ways to help the low paid via the tax and benefit system than through further increases in the income tax personal allowance," the IFS concludes.
Here are three IFS graphs that show Nick Clegg's "workers' bonus", increasing the personal allowance to £12,500, will help the rich more than the poor.
Risks of raising income tax threshold to £12,500
The top half would get the most benefit(01 of03)
Open Image ModalAs the IFS say: "69% (£8.4 billion) of the £12.2 billion per year giveaway would go to working families in the top half of the income distribution...Just 15% (£1.9 billion) would go to working families in the lowest-income half of the population."
The poorest will benefit little(02 of03)
Open Image Modal"Because 17% of workers already pay no income tax, those with the lowest earnings benefit little from a further increase to the personal allowance...The workers who would gain most in percentage terms from this further increase are those in the lower-middle of the individual earnings distribution," the IFS say.
Those on benefits could lose out...(03 of03)
Open Image ModalAmong the 2.2 million families paying income tax and on universal credit or council tax support, their family income would increase by only 0.8%.As the IFS chart shows, more than 40% of those in the second and third poorest declines would lose some of their extra income through reduced benefits.The Deputy Prime Minister will no doubt be keen to avoid mentioning any of the these problems.