Ed Davey promises income tax cut and a return to EU single market

Sir Ed Davey has pledged to cut taxes by striking a deal with the EU to rejoin the single market and customs union to boost growth.

The Liberal Democrat leader has unveiled his plan to raise the tax-free personal allowance to £15,000 and increase the higher rate threshold from £50,270 to £56,000 in a keynote speech closing his party’s annual conference on Tuesday.

Sir Ed said his plan to “slash the Brexit red tape” by joining the single market and customs union will bring “down barriers to trade”, creating the growth needed for his tax plans.

“Last year, I set out our plan for a new customs union, to slash the Brexit red tape,” he told the party conference in Brighton.

“Now I’m going further, because this moment demands it. Not just a customs union, but joining the single market too.

“Bringing down those barriers to trade. Breathing new life into our economy. And bolstering our collective security too.

“So I’m announcing our plan to raise the tax-free personal allowance to £15,000. Taking 2 million more people out of paying tax altogether, and giving most taxpayers a £680 tax cut.

“Real money, back in people’s pockets.”

He added: “Growing our economy with Europe. Backing our great British businesses. Putting money back into people’s pockets.”

The plan, which requires the party striking a deal with the EU in the first year of the next parliament, will also raise the additional rate threshold to £130,000.

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Under the plans, the Liberal Democrats would unfreeze the tax threshold currently in place until 2031, paid for by an estimated 0.5 per cent growth in the economy brought by rejoining the single market and customs union.

Tax thresholds will then be raised over the remaining the five year plan, which is estimated to cost £17 billion in its final year and be funded by dividends from the party’s plan for a new Growth and Defence Plan with Europe.

Then-chancellor Rachel Reeves announced at the Budget in November 2025 that a freeze on income tax thresholds will continue until 2030/31, meaning more people are likely to experience so-called “fiscal drag” and find themselves paying the higher rate.

Sir Ed said the policy was now “holding back teachers and nurses”, rather than those in traditionally higher earning jobs.

“The post-Brexit stealth taxes have pulled more and more people into paying that higher rate tax,” he said. “Thirty years ago, just 2 million people paid it. Now it’s 9 million.

“A tax band designed for stockbrokers is now holding back teachers and nurses. That’s not fair. It’s not right.”

A spokesperson for the Lib Dem leader said the tax cut would not be possible “without bringing back growth”, adding: “And we think the only way you can bring back growth is by doing a deal with our closest trading partner.”

But the spokesperson refused to commit to the policy being a so-called ‘red line’ if the Lib Dems were to enter another coalition government at the next general election.

“What Ed is focusing on is what our offering is the British people,” he said. “It's not speculating about what happens after the election.”

The Lib Dem leader also hit out at Reform UK’s tax plans, as he declared his party is in the “fight of our lives” against Nigel Farage.

“Now – you might have heard Robert Jenrick say something similar at Reform’s conference. In between trying to defend Farage’s latest funding scandal,” he said.

“But here’s the big difference. Jenrick didn’t say this, but Reform’s figures show they’d pay for it by ripping £22 billion of crucial support away from disabled people.

“Think about that. Reform say you can have a tax cut, but only if they get to punish disabled people at the same time

“We say no. We can cut taxes and support the most vulnerable people in our country.”

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