Fiscal policy: Millions to be freed from tax burden

But anyone earning more than 35,000 will face handing over more of their money.

Investors with money held in property and shares are also expected to see a doubling in the rate of tax they have to pay on any gains they make.

In its Coalition Agreement, published earlier this week, the Government committed to a "longer term policy objective" of increasing the personal allowance to 10,000. This would mean that anyone earning up to 10,000 would no longer be liable for income tax.

Recent projections published by HMRC showed 3.6 million people are expected to earn between 6,475, the current level of the personal allowance, and 10,000 during the coming tax year.

But while the parties have pledged to make a "substantial increase" to the personal allowance from April 2011, they are not expected to raise it to 10,000 in one go.

Instead, any increase is expected to offset the rise in National Insurance contributions, which will come into effect from April next year.

The move will see anyone earning more than 20,000 have to pay an extra 1 per cent in NI.