Allowance rise for 10p tax losers
Updated on 13 May 2008
Personal allowances will rise by £600 this year in an attempt to compensate the 10p tax losers, Alistair Darling announced today.
The £2.7bn move will "fully compensate" 80 per cent of the 5.3 million families who lost out when the starting rate of tax was scrapped in April. A further million will see their losses cut by at least half, Darling said in an emergency statement to the House of Commons.
The one-off move means the individual allowance - the figure at which income becomes taxable - will increase to £6,035. The higher rate tax threshold will also be brought down by £600, meaning only basic rate taxpayers will benefit from the extra allowance.
In total 22 million people on low to middle incomes stand to gain £120 this year, the chancellor said. Darling called the change the "fairest and most effective way to help all those affected as a result of the changes proposed last year".
"It also does more to help all basic rate taxpaying families at a time when oil and food prices have been rising in every part of the world," he said.
'It also does more to help all basic rate taxpaying families at a time when oil and food prices have been rising in every part of the world.'Alistair Darling
The rise, backdated to April this year, will hit pay packets in September. Basic rate taxpayers will get one extra £60 payment, and then £10 a month for the rest of the year.
The move is being funded by increased borrowing, to avoid taking money out of the slowing economy.
In future years, Darling said government plans to continue the same level of support for those on lower incomes; plans to this end will be set out in the autumn's pre-budget report.
Shadow chancellor George Osborne said the announcement "sounded less like a considered statement from a chancellor and more like a cynical press release in a by-election campaign".
Lib Dem treasury spokesperson Vince Cable questioned how many of the losers would be fully compensated, suggesting that to undo the 10p tax rate's effects, the chancellor would have to raise the threshold by £1,000.
An estimated 5.3 million families were left worse off by the ending of the 10p tax rate, which prompted a backbench rebellion when it came into force in April.
Gordon Brown's last budget as chancellor scrapped the 10 per cent "starting rate" of tax, which was paid on the first £2,230 of income, and cut the basic rate of tax from 22 per cent to 20 per cent.
Childless people and early retirees on low incomes were the worst affected by the move.
