LONDON (Reuters) – Britain will freeze the amount of money people can earn tax-free as well as the threshold for the higher income tax rate through 2026, Treasury Secretary Rishi Sunak said on Wednesday.
British Chancellor of the Exchequer Rishi Sunak holds the budget box in front of Downing Street in London, Great Britain, on March 3, 2021. REUTERS / John Sibley
Sunak said that while the base income tax rate of 20% and the higher income tax rate of 40% would not increase, the “personal allowance” for tax-free income and the threshold at which the higher tax rate starts would not increase with inflation.
Sunak said the freeze was part of an approach to public finances as he looked for ways to fundraise after unprecedented measures to support jobs and the economy during the coronavirus pandemic.
“This government is not going to raise income tax, social security or sales tax rates. Instead, our first step is to freeze personal tax thresholds, ”Sunak told parliament.
“We will of course keep our promise to increase the personal allowance back to £ 12,570 ($ 17,545) next year, but we will then keep it at this more generous level through April 2026.”
He said the threshold for higher rates would also rise to £ 50,270 next year, as previously promised, but would then also be frozen for the same length of time.
That will generate more government revenue as incomes rise with inflation and push more people over the thresholds so they have to pay more taxes.
The Institute for Fiscal Studies think tank said the four-year freeze would bring the Treasury Department to £ 1.5 billion a year in its first year and to £ 8 billion a year by 2025/2026.
The personal allowance threshold and the higher rate threshold in England and Northern Ireland were previously £ 12,500 and £ 50,000 per year, respectively.
“Because of this policy, no one will take home less than they are now,” said Sunak.
“But I want to make it clear that this policy removes the added value of having thresholds keep rising with inflation.”
($ 1 = 0.7164 pounds)
Reporting by Alistair Smout and David Milliken, editing by Elizabeth Piper, James Davey and Catherine Evans