Chief Secretary to the Treasury Danny Alexander said workers would be £400 a year better off if the personal allowance was raised to £12,500

Workers on the minimum wage will not have to pay any tax, under plans revealed by the Liberal Democrats today.

The party wants to increase the point at which income tax kicks in to £12,500 – meaning anyone working full time on £6.50 an hour would avoid the levy.

Chief Secretary to the Treasury Danny Alexander said the Lib Dems also wanted to raise the point at which workers start paying National Insurance.

Workers currently start paying national insurance on earnings above £153 a week, or £7,956 a year, at a rate of 12 per cent.

The Lib Dems say they hope to raise this to £12,500 by the end of the next parliament in 2020 – bringing national insurance contributions into line with income tax.

The Chancellor George Osborne announced in his budget in March that the personal tax allowance would be raised to £10,000 this year.

He also announced that this would be increased to £10,500 next year.

Raising the personal tax allowance would cut income tax for 30 million workers and be worth £400 per year to a typical basic rate taxpayer, the Lib Dems have claimed.

It would also see more than six million pensioners benefiting, according to Mr Alexander.

He said: ‘That's why cutting income tax for working people, particularly those on low and middle incomes, is a top Liberal Democrat priority.

‘It was on the front page of the 2010 Liberal Democrat manifesto and we have fought to keep it on the agenda at every budget.

‘By April next year we will have delivered a tax cut to over 26 million people worth £800 a year to a typical basic rate taxpayer and taken over three million out of tax altogether.

‘Now we want to go even further and lift the amount of money people can earn before paying income tax to £12,500.

‘The Liberal Democrats are the only party in British politics with a long-term commitment to cutting taxes for the working people of Britain.’

George Osborne, outside Number 11 before the budget in March this year, has tried to claim credit for increasing the personal allowance. But the Lib Dems say the policy would not have been introduced without them

He added: ‘We've delivered the largest programme of tax cuts for a generation over the last four years, despite all of the other financial pressures.

‘These manifesto commitments will mean nothing less than a generational shift to a fairer tax system that rewards work and helps working people.