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Budget 2018: Personal allowance increase arrives one year early.

Philip Hammond supported his much-vaunted pledge that ‘austerity is coming to an end’ by bringing forward the government’s increase to the personal allowance a year earlier than planned.

The Chancellor waited until the end of the speech to unveil his commitment to raise the basic rate tax threshold from £11,850 to £12,500 and the higher rate from £46,350 to £50,000 from April 2019-20. The Budget red book confirmed that the threshold will remain at the same level in 2020-21.

Hammond initially teased reneging on the government’s manifesto commitment to increase the personal allowance. With pledges such as an extra £2.5bn NHS cash injection over the next five years, Hammond said he was urged to freeze the current rates. But improved government finances allowed the Chancellor to cut the tax for 32m taxpayers.

Pushing the ‘austerity is coming to end’ slogan, Hammond said the increase will take 1.74m people out of income tax since 2015-16, and 1m fewer higher rate taxpayers than in 2015-16.

Commentator’s welcome increase

The ACCA’s head of taxation Chas Roy-Chowdhury welcomed the accelerated personal allowance pledge: “Many hard-pressed individuals, who have had little or no pay rises over the last several years. This is the biggest signal the Chancellor could give that austerity is almost over,” he said.

Likewise, IPSE’s chief executive officer Chris Bryce called the measure “a shot in the arm” for the lowest paid self employed:

“According to IPSE research between nine and 13% of the self-employed are at risk of being vulnerable – with low pay being one of the defining characteristics,” said Bryce “Therefore, increasing the current tax-free threshold from £11,850 to £12,500 as soon as April next year is a major shot in the arm for this group.”

With Brexit around the corner, Grant Thornton’s head of tax Jonathan Riley commented that the measure would help the “sluggish wage growth”.  He added: “If there is a downturn after Brexit, it might keep the tills ringing and prop up consumer confidence.”

During AccountingWEB’s live Budget panel, AccountingWEB contributor Norman Younger speculated whether this measure will help the Conservatives court the “workers at the bottom of the pay ladder”.

However, not all AccountingWEB members were impressed by the Chancellor’s personal allowance unveiling. Peter Jones said: “Personal Allowance increase offset by Auto Enrolment increase? So not much extra in people’s pockets.”

Need a handy summary of all the major measures from Budget 2018? Visit our at a glance guide.

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