By Tobias Benedetto
The personal income tax allowance will be increased by £1,000 in April 2011, it was confirmed, as George Osborne confirmed a key plank of the Liberal Democrat manifesto in his emergency Budget.
The rise to £7,475, at a cost of £3.7 billion, is the start of a drive to meet the coalition's long-term objective - and a key Lib Dem policy - of raising personal allowances to £10,000.
The measure will take the country's 880,000 lowest earners out of income tax altogether.
Income tax reform has long been a key agreement in the coalition government, with negotiators seizing on the policy as a workable ideological overlap soon after the election.
Lib Dem strategists say the measure will contribute to the economy, rather than just suck money from the Treasury.
Low-earners who benefit most from the move are the group most likely to spend the money, raising the prospect of increased income from VAT.