General description of the measure
For 2014-15, the personal allowance for those born after 5 April 1948 will be increased to £10,000, and the basic rate limit will be reduced to £31,865. As set out at Budget 2011, once the personal allowance has reached £10,000, it will then increase by Consumer Prices Index (CPI) in future years, starting from 2015-16.
Legislation will be introduced in Finance Bill 2014 to over-ride the amounts in the Indexation Order to set for 2014-15, the personal allowance for those born after 5 April 1948 at £10,000, and the basic rate limit at £31,865.
This measure will reduce income tax for low and middle income individuals, improving incentives to enter employment and increasing real household disposable incomes. This might feed through to higher consumption or savings in the household sector. Overall employment outcomes will also depend on other measures announced relating to personal tax and national insurance contributions as well as aggregate labour demand and the performance of the wider economy.
Impact on individuals and households
The increase in the personal allowance to £10,000 will take 257,000 individuals out of income tax altogether in 2014-15.
By April 2014, the cumulative effect of this Government’s increases in the personal allowance will lift 2.7 million people out of the income tax system.
In 2014-15, the increase will provide 24.5 million individuals with a real terms gain (over and above that from normal indexation) averaging £50. Of these, 20.4 million will be basic rate taxpayers and 4.2 million higher rate taxpayers (figures may not sum due to rounding).
0.47 million individuals will have an average loss of £50 in 2014-15. All of these have incomes above the breakeven level near £120,000 at which the personal allowance is tapered to zero and so no benefit is derived from the personal allowance increase.