Danny Alexander: “We’ve taken 1.1 million people out of paying income tax in our first 10 months in office.”

Angela Eagle: “But your switch from RPI to CPI actually takes the money back.”

Danny Alexander: “I’m afraid this isn’t true. In 2012 when the rise in personal allowances we announced today comes through, that will cost us over £1 billion; the CPI switch on National Insurance raises £100m.”

Angela Eagle: “It raises £1 billion by 2015.”

Newsnight, 23 March 2011

With yesterday’s Budget still hot off the press, a variety of differing interpretations of what its measures will mean to British citizens have already been proffered on the airwaves and in the papers.

However certain issues have proved to be a sticking point for some. On yesterday evening’s Newsnight, Chief Secretary to the Treasury Danny Alexander and his Labour opposite number Angela Eagle had something of a disagreement over whether or not taxpayers would see more money in their wallets as a result of the Budget.

So can the second-in-command accurately claim that it “isn’t true” that the same amount given out in increased tax allowances will be clawed back by the Chancellor through a change in tax indexation to CPI?

This very much depends on your frame of reference, and the Budget documentation can support the interpretation offered by both Mr Alexander and Ms Eagle.

In the first year of operation – 2012/13 – Mr Alexander’s portrayal is broadly accurate. The increase in the tax threshold is expected to see £1.05 billion remain in people’s pay packets, whilst the switch to CPI as the method by which direct taxes (including National Insurance) are indexed will raise an extra £105 million for the Government coffers.

However the switch to CPI indexation has a compound effect, meaning that the amount it saves the Treasury grows in each year of the Parliament. By 2015, the amount being generated through this measure is more in line with Ms Eagle’s claim, crossing the £1 billion threshold in the 2015-16 financial year, although it is still slightly short of the £1.23 billion expected to be paid out through increases to the personal tax threshold. In 2015 therefore, CPI indexation won’t quite have ‘taken back’ the money given out through the increase the personal tax allowance, as Ms Eagle suggested.