Middle-income Britain is in state of emergency, says Nick Clegg

Deputy PM calls for relief on income tax to be speeded up in a speech directed at chancellor George Osborne

Nick Clegg will warn on Thursday that the pressure on family finances has reached "boiling point" and mark a new phase in coalition politics by setting out in public his party's budget demands, including a call for the chancellor, George Osborne, to speed up help for the working poor.

In the first public negotiation over the budget since the coalition was formed, the deputy prime minister will warn in a speech that the squeeze on middle-income Britain has reached "a state of emergency" and that help to this group must be speeded up.

It has been assumed that the government will raise personal allowances for ordinary taxpayers in three further annual tranches so it reaches £10,000 by the end of the parliament in 2015.

Clegg will insist the government has to go further and faster, after the biggest squeeze since records began.

His call amounts to a big cut in income tax for ordinary taxpayers, and comes close to representing stimulus to the economy, even though Clegg insists the deficit must be reduced to the pace set out by the coalition.

His move represents another stage in the Liberal Democrats' differentiation strategy, which Clegg is determined to pursue.

The decision to set out a public negotiating stance on the budget was made before Christmas by Clegg personally. It is high risk for the party leader in that it may fail, exposing his weakness. But if it succeeds it will underline Liberal Democrat values and influence.

His demands have not been squared with the chancellor in advance.

Clegg acknowledges that the money needed to fund the personal tax allowance cannot come from a mansion tax, the Liberal Democrats' preferred tax-raising vehicle on the rich, as that has been ruled out by the Conservatives for this budget. He is instead looking at options such as closing stamp duty loopholes, clamping down on tax avoidance or further green taxes.

In a speech to the Resolution Foundation he will argue the big political question facing western governments is how the burden of pain is to be shared. He will say: "The UK's tax system cannot go on like this – with those at the top claiming the reliefs, enjoying the allowances, paying other people to find the loopholes while everyone else pays through the nose."

As a result, he will claim: "Every politician now has a simple choice: do you support a tax system that rewards the hard-working many? Or do you back taxes that favour the wealthy few?"

He will argue that middle income families "cannot be made to wait … delivering the £10,000 personal allowance more quickly will need to be fully funded. If that means asking more from those at the top – so be it."

He will argue that "cutting income tax is one of the most direct tools we have to ease the burden on low and middle earners.

"Whether you call them the 'squeezed middle', 'hard-working families', or, as I have, 'alarm clock Britain', it's the people whose incomes are too high to qualify for welfare benefits, but too low to provide any real financial security, who need this extra help."

He will say his aim is to cut income tax for millions of ordinary families – "the young couple who used to look forward to the holiday they would book or the car they would buy, but who now know that if the boiler breaks or the washing machine packs up, the money just isn't there".

He concedes "These families have seen their earnings in relative decline for a decade, compared to those at the top. That has accelerated since 2008.

"In just three years, real household disposable incomes have fallen by some 5%, one of the biggest squeezes since the 1950s, since the records began."

He will claim that the eventual lifting of personal allowances to £10,000 will mean paying £700 less in income tax each year – about £60 a month.

So far the government has lifted the tax allowance by £1,000 in the 2010 budget, from £6,475 to £7,475.

The 2011 budget set in train a further rise of an additional £630, to take the allowance up to £8,105.

Contributor

Patrick Wintour, political editor

The GuardianTramp

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