Magazine |
Lib Dems win on income tax

The Liberal Democrats succeeded in securing one of their pre-election pledges in the Emergency Budget on 22 June with the implementation of an increase in the threshold for income tax.

The personal allowance will rise by £1,000 to £7,475 April 2011. The basic rate upper limit is reduced, by £2,500 of taxable pay, so that upper earners do not benefit.

This means that the higher rate of 40% will now start at £34,901 of taxable income from next year, rather than £37,401. So the top rate will begin at £42,375, a net £1,500 lower.

The combined changes will limit the cost to the Treasury as approximately 800,000 people are taken out of income tax liability. It also means, according to Mike Warburton of accountancy Grant Thornton that: ‘As a result, I expect about 700,000 to pay 40% tax for the first time.’

The higher rate income tax threshold will remain frozen until 2013/14, with a long-term objective to increase the personal allowance to £10,000, in line with the Liberal Democrat manifesto. Despite these and other concessions, the Liberal Democrat leadership came under fire from Labour and its own left-wing for supporting the cuts and tax rises in the Budget.

The Government inherited the highest budget deficit in British history, as a proportion of GDP, and Labour would have introduced a combination of tax rises and spending cuts had it been re-elected. The accelerated cuts of George Osborne’s plans bring forward the planned elimination of the deficit by two years.

23/06/2010