The government will increase the personal allowance to £12,500 one year earlier than the Conservatives pledged in their manifesto, the chancellor announced in the Budget on Monday.
Philip Hammond said improved government finances meant workers will be able to keep more of what they earn – the personal allowance currently stands at £11,850.
Meanwhile, the chancellor also said the threshold for higher rate tax will rise from £46,350 to £50,000 a year ahead of schedule.
The changes mean basic rate taxpayers will save £130 per year, while higher rate taxpayers will hold on to an extra £860. Additional rate taxpayers – those who earn more than £150,000 – will save £600.
Patricia Mock, tax director at Deloitte, said Mr Hammond’s announcement was a “welcome boost to taxpayers and perhaps a surprising move”, because it comes at an estimated cost of £2.8bn in 2019-20.
John O’Connell, chief executive of the TaxPayers’ Alliance, said: “Increases in the personal allowance and higher rate income tax thresholds, with freezes to taxes on beer, cider, fuel and short-haul flights, will give much-needed breathing space to hard-pressed taxpayers.”
However, Iain McCluskey, personal tax partner at PricewaterhouseCoopers, said the chancellor had used the Budget to “throw fiscal confetti on UK taxpayers”.
“His scattering of a fistful of cheap, light and airy personal tax measures was more tinkering than transformational, though he will be pleased to have finally reached the promised destination of the personal allowance and basic rate band of income tax,” he said.
Mr McCluskey pointed out that the policy of increasing the personal allowance and higher rate threshold had proven to be more resilient than the coalition government that came up with it.
However, he added: “The lowest paid taxpayers who earn less than the current personal allowance won’t see any benefit from this rise in these thresholds, and will reflect on whether a rise in the much lower national insurance contributions lower earnings limit would have been a better spending choice.”
