Just how much have we cut tax for basic rate taxpayers?

So, the personal allowance will reach £10,000 on 6 April 2014, a year ahead of the target stated in the 2010 Liberal Democrat manifesto. Excellent work, especially in the teeth of a lengthy period of austerity, and I note that there is much excitement that we have 'delivered a £700 tax cut for ordinary people'. Far be it for me to demur from the celebrations (and there is much to celebrate), but perhaps a look at the numbers might help.

To get a benefit of £700, you would have to assume that the personal allowance would not have been increased from its 2010/11 level, i.e. £6,475 (£3,525 at 20% is £705). So I wouldn't claim the £700 figure myself, even if it is accurately calculated.

So, I have reservations. However, the more realistic figures are pretty good nonetheless. Had the personal allowance increased by RPI as envisaged by Section 57, Income Tax Act 2007, it would have been £7,285 for 2013/14 and, assuming that the RPI for September 2014 would be 2.5%, £7,475 for 2014/15. Accordingly, the tax benefit for basic rate taxpayers would be £2,525 at 20%, or £505. That's not bad.

Interestingly, Alastair Darling effectively revoked the RPI linked by failing to increase the personal allowance in his 2010 budget. On that basis, the personal allowances enhanced for RPI in later years would have been £7,195 for 2013/14 and £7,375 for 2014/15. On that basis, the tax benefit for basic rate taxpayers would be £2,625 at 20%, or £525, or 75% of the £700 claimed, which is still worthy of celebration.

But if you want to get a real idea of how much less in income tax has been taken from basic rate taxpayers, you should look at the cumulative benefit of increasing the personal allowance.

The total income tax saving for 2011/12 to 2014/15 for a basic rate taxpayer would be £1,348, made up as follows;

• £790 at 20% in 2011/12
• £1,080 at 20% in 2012/13
• £2,245 at 20% in 2013/14
• £2,625 at 20% in 2014/15

In terms of overall tax take, increased VAT does have an downward impact on the overall benefit, although certainly not sufficient to extinguish the benefit of the personal allowance increase.

There are some huge good news stories to be told. 2.7 million people will have lifted out of the income tax system, 257,000 of them in 2014/15, and 24.5 million individuals will receive an average real terms gain of £50.

So, Liberal Democrats can legitimately claim a massive achievement, which makes work more rewarding and is broadly redistributive. And we should be proud, accordingly. That's what we came into government to do, after all.