Personal Allowance Budget changes: Did Rishi Sunak announce changes to Personal Allowance?

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Six months after freezing the Personal Allowance in the Spring Budget, Rishi Sunak had the chance to revisit the economic plan in today’s Budget announcement. While the Chancellor revealed the Consumer Price Index (CPI) is set to rise by four percent next year, there was no suggestion to revisit the freeze on Personal Allowance in line with rising inflation.

In his speech to the House of Commons today, Chancellor Rishi Sunak repeated the Autumn Budget would make the UK economy “stronger”.

Mr Sunak said this Budget: “does not draw a line under Covid… We have challenging months ahead.”

But, he promised a “new economy post-Covid” and a “new age of optimism”.

Closing his announcement in the Commons this afternoon, Mr Sunak said: “I want taxes to be going down, not up.

“That’s my mission over the remainder of this parliament.”

However today’s Budget confirms inflation is set to rise by four percent next year, and no word on lifting the freeze on Personal Allowance.

Rishi Sunak addressed the backdrop of rising inflation, placing the figure from September at 3.1 percent.

But the Consumer Price Index set to rise to four percent next year, citing increased demand for goods around the world and global demand for energy.

This freeze means that taxpayers could be paying a higher rate of Income Tax than they would be otherwise.

In addition to the freeze, workers also face a hike in national insurance due to the health and social care levy.

Jamie Williams, a Director at Lime Advisory in Cardiff said, “For the last decade, personal allowances have increased each tax year, from £7,475 in 2011/12 to £12,570 in 2021/22. The higher rate threshold has also risen significantly during this period, and in most years above the rate of inflation. This has effectively meant a take home pay rise for workers each tax year.

“Freezing the personal allowance and higher rate tax thresholds until 2026 will impact individuals spending power – particularly considering the rise in inflation we are currently seeing. 

“Take an individual who does not get a pay rise between now and April 2022. Their take home pay will actually decrease in new tax year, due to the introduction of the health and social care levy (a de facto increase in National Insurance of 1.25 percent) and the purchasing power of that take home pay would have been reduced by inflation.

“Workers will therefore see a reduction in take home pay with that pay being stretched even further by the increased cost of living.”

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What taxes were cut by Rishi Sunak in the Autumn Budget?

While Mr Sunak did not choose to revisit the freeze to Personal Allowance, he cut many other taxes.

The taper rate on Universal Credit was cut by eight percentage points, decreasing from 64 to 55 percent.

The Chancellor froze fuel duty, which he claimed would save £8 billion.

Mr Sunak also handed out tax relief for theatres and galleries.

The Chancellor has slashed business rates by 50 percent – up to £110,000 – for businesses in the retail and leisure sectors for a year.

What is your Personal Allowance?

The Personal Allowance is the amount of earnings you are entitled to not pay tax on.

Anything you earn above this threshold is taxed under Income Tax.

The standard Personal Allowance in the UK is currently £12,570 though it can be higher if you qualify for Married Allowance or Blind Person’s Allowance.

Your Personal Allowance is lower if you earn more than £100,000 per year.

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