Liberal Democrat leader Nick Clegg will push for further increases to the personal allowance so no one earning the minimum wage pays income tax.
Speaking to the BBC at the Lib Dem conference in Glasgow yesterday, Clegg said proposals for the personal allowance to rise beyond its current target of £10,000 will be included in the Lib Dem manifesto for the 2015 general election.
The personal allowance will rise to £10,000 next April and currently stands at £9,440 after rising from £6,000 in 2010. It was a key policy in the 2010 Lib Dem manifesto.
Someone earning the lowest minimum wage would currently earn a maximum of £11,400 a year.
Clegg said: “Tax fairness will of course be one of the signature tunes for the Liberal Democrats.
“We are committed as a party – and I am committed to this – to raising the allowance further such that… everybody on the minimum wage pays no income tax.”
If a future Government adopts the policy it could result in tens of thousands of people being excluded from automatic enrolment.
This is because the earnings level above which someone qualifies to be auto-enrolled into a company pension scheme is currently linked to personal allowance.
Hargreaves Lansdown head of pensions research Tom McPhail says: “Unfortunately the higher the personal allowance goes, the more people will be excluded from auto-enrolment. Just raising the earnings trigger to £8,105 removed another 90,000 from auto-enrolment.
“For low earners, the bulk of their retirement income will come from their state pension. The higher you raise the earnings trigger, the greater the risk you’ll be excluding people who really should be saving in a private pension as well.”
Clegg also insisted the Government would remain “vigilant” to concerns of a fresh housing bubble but dismissed warnings the Help to Buy scheme could lead to unsustainable price rises.
Help to Buy was the flagship policy of the last Budget and aims to help borrowers access 95 per cent loan to value deals on properties worth up to £600,000.
The first shared equity part of the scheme began in April and the second part kicks in on January 1 with details still to be agreed between the Treasury and lenders.
Business secretary Vince Cable last week questioned whether the second part of the Help to Buy scheme was needed and said the Government needs to “rethink” it.
The scheme has also been attacked by ex-Bank of England governor Sir Mervyn King, the Treasury select committee and the International Monetary Fund.