Tax-free allowance rise brings manifesto pledge closer
Basic rate taxpayers will be £1,075 a year better off, while the 40pc threshold increases to £46,350
THE rates at which workers start paying income tax, and at which they are sucked into the higher band, will both increase next year after the Chancellor signalled that ministers would honour a manifesto commitment to continue raising the two thresholds.
The tax-free personal allowance will rise by £350 to £11,850 from April, while the threshold for paying the 40 per cent rate will increase from £45,000 to £46,350.
The announcement came after Philip Hammond was heavily criticised earlier this year for breaking a separate manifesto pledge by the Conservatives on national insurance.
Yesterday the Chancellor said the increase to the tax thresholds showed “progress towards our manifesto commitments” in June, which included raising the personal allowance to £12,500 and the higher rate to £50,000 by 2020.
A basic rate taxpayer would be £1,075 a year better off as a result of the moves, he added.
However, last night analysts said the increase in the personal allowance to £11,850 was “less generous than some may think” because, at just over 3per cent, it was only in line with inflation.
“High inflation means that the Government’s commitment to increase the personal allowance to £12,500 by 2020-21 may also start to look less generous, with only just over a 5per cent further total increase now needed to reach this level,” said David Kilshaw, a private client services partner at EY, the professional services firm. The per- sonal allowance has risen by more than £5,000 since 2010, while since 2015 the higher rate threshold has increased by almost £4,000.
Announcing the increases for next year, Mr Hammond told the Commons: “When we came into office, the personal allowance stood at £6,475.
“From April, I will increase the personal allowance to £11,850, and the higher rate threshold to £46,350 – making progress towards our manifesto commitments. The typical basic rate taxpayer will be £1,075 a year better off compared to 2010.”
The announcement was welcomed by the Tory Workers group, which said the two moves meant “middle income earners will keep more of their own money”.
The personal allowance and higher rate threshold began to increase under George Osborne, Mr Hammond’s predecessor.
Iain Mccluskey, a tax partner at PWC, said: “The tax-free personal allowance has increased by over 40per cent against inflation since 2010, removing the need for a considerable number of lower paid people to pay income tax.
“However, given the point at which national insurance is payable by employees starts at more than £3,000 below that of income tax, the lowest paid taxpayers may reflect on whether a further raise in the personal allowance is the right way to support them.”
Earlier this year, Mr Hammond abandoned plans to raise national insurance for self-employed workers in the last Parliament after admitting that it breached the “spirit” of the Conservatives’ 2015 manifesto.
The Chancellor had provoked a furious reaction from Tory backbenchers after using his Budget to announce plans to raise NI contributions for the self-employed by 2per cent.
Mr Hammond wrote to Tory MPS after the March budget saying that while the changes he had announced were justified, the Government had chosen not to go forward with the rise in “class 4” national insurance contributions.