Personal allowance hike on the menu at October Budget
The Chancellor is weighing up proposals to raise the personal allowance at next month’s Budget in what could be the biggest shake-up to income tax rules in years.
John Healey is reportedly considering unfreezing the income threshold at which earners start paying tax from £12,570 to as much as £15,570.
The unfreezing would be the first time a rise in personal allowance has occurred since 2021, with proponents of the plan arguing that the extra £3,000 would be a much needed boost for the economy.
But Healey is also considering tax hikes elsewhere, including upping capital gains tax, to make up the shortfall in revenues to the Exchequer.
Dale Vince, founder of green energy giant Ecotricity and one of the biggest Labour party donors claimed the move could generate 1.2 per cent growth in the economy.
Vince said: “We’ve taken £600 million from millions of people and we’ve actually impaired the economy.”
Vince’s recommendations which also include aligning capital gains tax with income tax in pre-budget submissions, are reportedly being taken seriously by senior Labour officials.
However, former Conservative Treasury minister Sir David Gauke voiced concern over the planned unfreezing of personal allowance.
Sir David told BBC radio 4: “Anything that sounds too good to be true is almost certainly too good to be true.
“I’m very sceptical that you can raise that sort of money from the banking sector, without it having a significant impact on competitiveness, specifically lending that goes toward small businesses.”
In last November’s budget, then Chancellor Rachel Reeves confirmed the personal allowance, as well as other income tax thresholds, would be frozen until 2031 rather than going up in line with inflation as it had done previously.
This practice was stopped in 2021 following the Russian invasion of Ukraine and rising costs by then Prime Minister Rishi Sunak.
The OBR confirmed that freezing income tax thresholds would raise £8bn a year by 2029, and will drive 780,000 more people into the basic rate, 920,000 more into the higher rate, and 4,000 into the additional rate by the end of the parliament.
Other Tax proposals
Other proposals under consideration include expanding the ‘Mansion Tax’ by lowering the initial £2m threshold to £1.5m, meaning that all properties valued at £1.5m or higher will be liable to pay at least an extra £1,500 per year.
Other tax changes are rumoured to include business rates reform, sector specific levies, and reductions to the tax gap.
These tax proposals are potentially being included in a budget that is being labelled as a “Pain Cost” for businesses by chief executive of professional services giant Baker Tilly.
Francesca Lagerberg, Baker Tilly chief, told City AM: “The mood music is that it will not be a fun day out, I think that is probably where everybody is sitting at the moment.”
A Treasury spokesman said decisions on tax were a matter for the chancellor to set out at fiscal events, rather than “routinely commenting on rumour, speculation or proposals.”