Autumn Statement: Personal allowance to rise more than expected

Published by Johanna Gornitzki on 05 December 2012.
Last updated on 05 December 2012

Pound coins

From next April, the personal allowance will rise by a further £235 on top of the already announced increase of £1,100, Chancellor George Osborne announced today.

That means a total increase of £1,335 – the equivalent of £267 more in your pocket each year and the highest cash rise ever.

In total, from the next tax year people will be able to earn £9,440 before paying any income tax, up from the current limit of £8,105 (2012/2013).

Osborne says: "This is a direct boost to the incomes of people working hard to provide for their families.

"People working full-time on the minimum wage, will have seen their income tax bill cut in half.

"And we are within touching distance of the £10,000 personal allowance."

He adds: "And this time, I propose to extend the benefits of this further increase to higher-rate taxpayers."

The Chancellor’s Autumn Statement also revealed that the higher-rate income tax threshold will rise by 1% in 2014/2015 and 2015/2016.

You currently have to earn £41,450 (on top of your personal allowance) before you have to start paying 40% income tax on anything you earn above that amount. But with the changes, this will rise to £41,865 in 2014/2015 and then to £42,285 in 2015/2016.

But while it is an increase, it fails to keep up with the rate of inflation – currently at 2.7% (consumer prices index), meaning that in real terms the increase will not be able to keep up with rising living costs.

Osborne admits this is the case: "I want to be completely clear with people. This is an increase; in fact, it is the first cash increase in the higher-rate threshold in this Parliament.

"But it is not an increase in line with inflation, and so it raises £1 billion of revenue by 2015/16."

He adds: "Again, there are no easy ways to reduce the deficit – but from year to year, no one will pay a penny more in income tax."

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