Wednesday, 14 May 2008

on raising the personal tax allowance

As I blogged about last month, following this year's Budget the government was £2.8bn short of breaching its sustainable income rule. This rule stipulated that the government would not spend more than 40% of national income. Yesterday we found out that the Chancellor intends to spend £2.7bn giving basic rate tax payers a tax cut. He will do this by increasing the personal allowance by £600 and will fund this by borrowing.

The tax cut works as such: The personal allowance is increased by £600, before this the £600 would be taxed at 20% gaining the Treasury £120, now you gain £120.

Clever, he's still within his 40% ceiling by £0.1bn. However, as mentioned last month, Northern Rock is not included in this figure, something we can look forward to for next year. Higher rate tax payers won't benefit from this change, the tax threshold for higher rate tax payers is being reduced by £600, to ensure they do not benefit.

Reinstating the 10p tax rate would have cost £7bn, raising the personal tax allowance only cost £2.7bn, clearly people are still losing out to the tune of £4.3bn. Or put another way, the government still makes £4.3bn from some of the poorest in this country.

Things to keep an eye on:

  • The higher rate (40%) threshold going back up next year in proportion to the personal allowance coming down, if it does not STEALTH TAX ALERT!
  • Northern Rock being added to the government's debt book
  • David Cameron coming out with a policy

1 comments:

gord 15 May 2008 at 10:55  

It wasnt about helping the very lowest paid, it was about buying some votes. The lowest paid have now been screwed for the second time.All Labour are concerned about is saving their own necks, Frank Field included it seems.

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