Perhaps surprisingly, Budget 2015 was more subtle than most commentators had predicted in that its emphasis was upon keeping on track with deficit reduction and prioritising – by pre-announcing - future increases for 2016/17 and 2017/18 in the personal allowance, says Stephen Herring, head of taxation at the Institute of Directors
In fact, the proposed personal allowances increases of £200 for both 2016/17 and 2017/18 are very small beer. Indeed, it is only that the credit quake has created an expectation where it is considered that the Chancellor has ‘given away’ something to taxpayers by increasing the personal allowance by less than 2%, ie, below the inflation target set for the Bank of England.
Somewhat more encouragingly, the Chancellor specifically referred to the higher rate tax threshold in his speech and, thankfully, the basic rate tax band is to be increased by £115 in 2016/17 and a further £400 in 2017/18.
At least the basic rate tax band is not going to be raided to finance an increase in the personal allowance, thereby dragging more taxpayers (who are paid less than twice median earnings) into the 40% income tax band. We remain hopeful that at least one of the party manifestos will include a more radical approach to removing the impact of fiscal drag by, for example, adopting our suggestion that the higher rate threshold is ‘triple-locked’ to the highest of the consumer price index, earnings growth and 2.5% on the same basis as the single-tier state pension.
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