Sir Ed Davey proposes tax cuts tied to EU trade deal
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, reports BritPanorama.
In a keynote address wrapping up his party’s annual conference, the Liberal Democrat leader unveiled his initiative to raise the tax-free personal allowance to £15,000 and increase the higher rate threshold from £50,270 to £56,000.
Davey emphasised that his strategy to “slash the Brexit red tape” through joining the single market and customs union will lower trade barriers, essential for the economic growth needed to support his tax proposals.
“Last year, I set out our plan for a new customs union, to slash the Brexit red tape,” he stated in Brighton. “Now I’m going further, because this moment demands it. Not just a customs union, but joining the single market too.”
He elaborated that this would enhance economic activity and improve collective security. “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,” he added.
According to Davey, this plan hinges on the Liberal Democrats successfully negotiating a deal with the EU in the first year of the next parliament and aims to raise the additional rate threshold to £130,000.
The Liberal Democrats plan to unfreeze the tax threshold currently set until 2031, financed by an estimated 0.5% growth in the economy anticipated from rejoining the single market and customs union.
Tax thresholds are intended to increase over the five-year plan, projected to cost £17 billion in its final year, underpinned by anticipated dividends from a new Growth and Defence Plan with Europe.
David Reeves, the then-chancellor, previously announced at the November 2025 Budget that the freeze on income tax thresholds would persist until 2030/31, which could result in more individuals facing higher tax rates.
Davey asserted that current policies are burdensome for teachers and nurses, rather than those in higher earning sectors. “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 spokesperson for the Lib Dem leader remarked that the proposed tax cut would only be feasible by stimulating growth, stating, “We think the only way you can bring back growth is by doing a deal with our closest trading partner.” However, they did not confirm whether this policy would be a firm stipulation in a potential coalition government scenario.
Davey also challenged Reform UK’s tax proposals, signalling his party is engaged in a serious contest against Nigel Farage. “Now – you might have heard Robert Jenrick say something similar at Reform’s conference,” he noted. “But here’s the big difference. Reform’s figures show they’d pay for it by ripping £22 billion of crucial support away from disabled people.”
In a stark contrast, he reaffirmed, “We say no. We can cut taxes and support the most vulnerable people in our country.”
The backdrop to these discussions illustrates the ongoing complexities surrounding tax policies and trading relations in a post-Brexit UK, with a Liberal Democratic response focusing on the interplay between economic growth and EU relations taking centre stage. The implications of these proposals will provide fertile ground for debate as the political landscape evolves further.
