Budget 2012: Two million people on low incomes taken out of tax system, George Osborne boasts And this Coalition Government will have taken two million people on the lowest incomes out of tax altogether. Mr Osborne said the Government was now within "touching distance" of increasing the personal allowance to £10,000, which is a goal in the Coalition agreement. He said: "I want to go much further and much faster... The Chancellor said taking people on low incomes out of the tax system was "the best way to support working people on the lowest incomes." He added: "The best way of getting money directly into pockets of working families on middle incomes is to increase the amount of their earnings they can keep before they pay tax." When the Coalition came to power the tax free threshold was £6,475. Since then it increased to £7,475 in April last year and to £8,105 from next month. The effect of these changes has been to take 1.15million people on low incomes out of the tax system. A further 840,000 people will stop paying tax as a result of the changes announced in Wednesday's Budget. The increase was a concession to the Liberal Democrats who have insisted that they want it to be increased to £10,000 by 2015. Deputy Prime Minister Nick Clegg declared that the Budget was one that "every liberal can be proud of." He told Lib Dem activists after Mr Osborne had spoken: "We're proud of the fact that we have delivered the largest increase in the personal allowance ever. We are very proud that we are taking over two million people out of paying income tax altogether. We have delivered from the front page of our manifesto to the pay packets of millions of ordinary working people. The right of centre Adam Smith thinktank welcomed the increase, but warned that only basic rate taxpayers would benefit because of a fall in 40 per cent threshold. Tom Clougherty, executive director of the Adam Smith Institute, said: "It is very welcome that the personal allowance has been raised. But the reduction of 40p rate threshold will mean that only basic rate taxpayers will benefit from the personal allowance rise. Fiona Weir, chief executive of single parents group Gingerbread, said: "Whilst raising personal tax allowance will offer some respite, this is less generous than at first sight. Already the single parents who do not earn enough to pay tax will find that the extra £220 they get through the increased allowance will be eroded by reductions in their means-tested housing benefit.