The one thing that didn't change that will affect your pay the most - BBC News
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Income Tax Thresholds: A Frozen Policy
Income tax thresholds, currently frozen under successive chancellors, are scheduled to remain at 2021 levels until April 2031. Subsequently, they are expected to rise with inflation.
John Healey may not have explicitly mentioned this in his Budget speech, but according to documents from the Office for Budget Responsibility (OBR), the freeze is set to end.
After 2031, the personal allowance and other thresholds will adjust upwards with inflation, allowing individuals to keep more of their earnings.
This freeze has been a subtle yet significant way for chancellors to raise additional revenue, affecting those with incomes closest to the tax thresholds the most.
The Impact:
- Who is affected? Individuals earning close to the tax thresholds, especially those with pay rises, are impacted.
- Increase in Tax Collectors: The OBR projects that by 2030-31, this frozen policy will bring in an additional £58 billion, surpassing current UK defence spending.
- Pensioners: While the state pension is just below the personal allowance threshold, the new Pension Tax Allowance will ensure low-income pensioners with income up to the full state pension are exempt from income tax.
- National Insurance Contributions: These are also levied according to the same frozen thresholds.
While the freeze has provided a steady stream of revenue, it has also meant a gradual shift of income towards higher tax brackets.