Income Tax bands frozen till April 2028 view?

Pat38493

p00hsticks said:

Pat38493 said:

To be honest, I think both the main political parties are planning to keep them frozen till 2028.

Reason - freezing these tax bands constitutes a massive income tax rise which hits lower earners even more than higher earners.  Therefore I would think that if Labour were not going to keep that measure, they would be screaming blue murder about it every day because it they could get the public to understand that this freezing or rates is the same as an several percent rise in income tax, they would get a lot of votes out of it, but they would then have to reverse it if they got into power.

I think the argument against that is that raising tax bands is a blunt instrument that affects all earners. 
Labour might well be looking at other more targeted measures that would benefit the lower earners without also including - or even at the cost of - the higher ones.  

I tend to agree, but since Labour never seem to mention this, this is what leads to my theory that they don't want to change it.

Silvertabby

dunstonh said:

I think the personal allowance will increase if the triple lock remains.    The problem is the state pension.   If the PA remains as it is (as planned), then within a short period, it will make virtually everyone with a state pension a taxpayer.   It will create an expensive situation where current non-taxpayers with no other income source will need to pay HMRC.      

I agree.  If next year's CPI increase is 8%, that will take the nSP to £11,448.  Even more modest increases over the following 3 years could take the nSP alone over the current personal tax allowance.

My bet is on an increase in the personal allowance, taking it to an amount just over the nSP, being announced if/when CPI takes the nSP over £12570.  

Doctor_Who

Try living in Scotland! The higher rate band has been effectively frozen (with minor increases) at the UK rate applicable in 2017-18 (currently £43,663 vs UK rate of £50,271) AND the rate is 42% vs 40%. Yes, we have a starter rate of 19%, but the majority of income below the higher rate band is taxed at 21%. At least the scenery is nice!

leosayer

SouthCoastBoy said:

Imo, I can't see the thresholds being unfrozen, it's an increase in tax revenue which based on current govt commitments will be required to help balance the books. 

I agree.

There is also an argument that higher taxes help to reduce inflation. 

As such, with high inflation it's hard to see taxes being reduced or thresholds being increased unless there's an election around the corner.....

The market, press and economist's reaction to Kwarteng's mini-budget last year will be fresh in the chancellor and shadow-chancellor's mind. 

sammyjammy

Silvertabby said:

Another way of looking at it is that if the personal allowance had only risen by CPI since 2010 then it would have only just reached its current level.

Instead, we have enjoyed the higher level for some time now.  A case of 'jam yesterday for bread tomorrow'?

If my wages had risen with CPI I'd agree with you but good point well made.

NoMore

Silvertabby said:

dunstonh said:

I think the personal allowance will increase if the triple lock remains.    The problem is the state pension.   If the PA remains as it is (as planned), then within a short period, it will make virtually everyone with a state pension a taxpayer.   It will create an expensive situation where current non-taxpayers with no other income source will need to pay HMRC.      

I agree.  If next year's CPI increase is 8%, that will take the nSP to £11,448.  Even more modest increases over the following 3 years could take the nSP alone over the current personal tax allowance.

My bet is on an increase in the personal allowance, taking it to an amount just over the nSP, being announced if/when CPI takes the nSP over £12570.  

Is there any chance they could just say State Pension income is tax free and therefore the Personal Allowance is no longer a problem for State Pension.

Silvertabby

NoMore said:

Silvertabby said:

dunstonh said:

I think the personal allowance will increase if the triple lock remains.    The problem is the state pension.   If the PA remains as it is (as planned), then within a short period, it will make virtually everyone with a state pension a taxpayer.   It will create an expensive situation where current non-taxpayers with no other income source will need to pay HMRC.      

I agree.  If next year's CPI increase is 8%, that will take the nSP to £11,448.  Even more modest increases over the following 3 years could take the nSP alone over the current personal tax allowance.

My bet is on an increase in the personal allowance, taking it to an amount just over the nSP, being announced if/when CPI takes the nSP over £12570.  

Is there any chance they could just say State Pension income is tax free and therefore the Personal Allowance is no longer a problem for State Pension.

Can't see that happening.  Those on just the State pension, or not much more, either pay no tax or a very small amount.

Making the State pension tax exempt would only benefit the better off.  Said as someone who pays more than a little tax in retirement.

Doctor_Who

NoMore said:

Silvertabby said:

dunstonh said:

I think the personal allowance will increase if the triple lock remains.    The problem is the state pension.   If the PA remains as it is (as planned), then within a short period, it will make virtually everyone with a state pension a taxpayer.   It will create an expensive situation where current non-taxpayers with no other income source will need to pay HMRC.      

I agree.  If next year's CPI increase is 8%, that will take the nSP to £11,448.  Even more modest increases over the following 3 years could take the nSP alone over the current personal tax allowance.

My bet is on an increase in the personal allowance, taking it to an amount just over the nSP, being announced if/when CPI takes the nSP over £12570.  

Is there any chance they could just say State Pension income is tax free and therefore the Personal Allowance is no longer a problem for State Pension.

Would that mean ~£10600 of tax free state pension AND £12570 tax free other income (DB/DC pension)? I think that would cost considerably more than raising the personal allowance by, say, £500-£1000.

MattMattMattUK

sammyjammy said:

Silvertabby said:

Another way of looking at it is that if the personal allowance had only risen by CPI since 2010 then it would have only just reached its current level.

Instead, we have enjoyed the higher level for some time now.  A case of 'jam yesterday for bread tomorrow'?

If my wages had risen with CPI I'd agree with you but good point well made.

In 2010 average income as £25,885 which would be equivalent to £35,228, compared to the average income in 2022 of £33,000, so 6.3% or £2,228 less than rising in line with inflation.

However, when moving from gross to net, in 2022 the net on the average was £19,785, adjusted for inflation to 2022 that would be £26,926, but in 2022 the net on £33,000 was £26,315, so only 2.6% or £611 lower.

Interestingly for those at the bottom end of the earnings scale, particularly those on MW/NLW their net earnings have increased ahead of inflation, for those middle to lower higher earners theirs have not kept pace with inflation and with very high and ultra high earners their income has hugely exceeded inflation. 

https://www.statista.com/statistics/1002964/average-full-time-annual-earnings-in-the-uk/

That does of course ignore the impact of inflation over the last twelve months, but the data for 2023 is not yet published, though that would largely be in line with the drop in real terms earnings we are all facing due to high inflation. 

MK62

Silvertabby said:

Another way of looking at it is that if the personal allowance had only risen by CPI since 2010 then it would have only just reached its current level.

You could equally say that if the personal allowance had only risen by CPI since 2015 then it would be just shy of £14000 now........