Kathryn Cooper
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MILLIONS of people will get a welcome boost to their pay packets this month following a government u-turn.
More than 20m people will receive a £60 tax rebate in September, followed by £10 a month for the rest of the tax year – a total of £120.
The move stems from embattled chancellor Alistair Darling’s about-turn on the 10p tax band earlier this year. The lowest income-tax rate was scrapped from April, leaving more than a million of the poorest taxpayers worse off. Following a backlash from MPs, the chancellor agreed to raise the personal allowance from £5,435 to £6,035 from September to compensate for their loss.
That means another £600 of income will be free from tax – a saving of £120 for the 22m taxpayers who pay the basic rate of 20 per cent on earnings up to £40,835 (the new personal allowance of £6,035 plus the upper threshold for the basic-rate, £34,800).
But it is not good news for everyone. While the rebate compensates four out of five of the 5.3m who lost out from the abolition of the 10p band, there are some losers.
More than 1.1m households earning £6,035 to £13,355 will be up to £112 a year worse off, according to the Institute for Fiscal Studies.
Self-employed taxpayers will not feel the benefit until they start paying tax from January 2009.
Higher rate taxpayers don't benefit at all. Had the chancellor simply raised the personal allowance by £600, higher rate payers would have been £240 better off - twice the benefit for those in the basic band - because £600 of income would have been taken out of 40 per cent tax. To prevent this, Darling therefore reduced the level of income at which you start paying top-rate tax by £600 from £41,435 to £40,835.
Another 150,000 people have been brought into the higher income-tax band, but this will be offset by the £120 benefit from the raising of the personal allowance, accountants said.
Commentators expect the rebate to give the economy a short-term boost. “Taxpayers with another £60 in their pocket may well go out and spend it. That could increase high street profits, “said Chris Jones of tax advisers Lexis Nexis.
However, the rebate will also punch an estimated £2.7 billion hole in the national finances, making it more difficult for the economy to weather a possible recession.
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Craig my husband earns 45k a year why should he support who dont work, why dont they work because they know get everything free. I support low paid workers yes, but at end of day my husband drives hour half every day to get that wage. so hes no better off as cost more.
shirley steele, lincoln,
I don't think it is fair that some people pay a higher tax rate just because they earn more. We are keeping those who are too lazy to work! We get no extra benefits for paying more tax. Everyone should pay the same amount of tax which would be a whole lot fairer.
Sue P, Berkhamsted, England
my boss says we cant have this as we are on a salary,is this true??
jon, wrexham, wales
my tax code has changed to 603L, not sure what that means should i get a rebate, i no someone who got paid yesterday and had an extra 300 quid in there wages..
s burnett, southampton, england
for those that are on a low income i think that we are taxed to much for it all to line their pockets its hard enough to survive on minunm wage with all the food energy prices goin up the minunm wage goes up by 15 then the food prices goes up higher it is appauling
paula, northamptonshire,
Craig, why pick on Mr 45k? Just becuase he earns more than the rest of us, doesnt mean he isnt entitled to the same increases etc we get, especially if worked hard to get it. Thats like saying those who earn enough shouldnt get child benefit etc and remember, he pays twice the amount of tax we do
Adam, Lancing,
To Mr £45k; with pre-tax earnings of £865+ per week, it's somewhat easier for you to absorb a a £120 change in tax than someone who earns minimum wage at £220 for a 40-hour week. You earn significantly more than the national average; in the top 15% of earners in the UK in fact. Must be hard for you.
Craig, Edinburgh,
They are a total disgrace.Labour taxing the lowest paid in the land and now codging the blunder with more tinkering.They came into power with high hopes and in the very first budget Mr Brown set in motion the destruction of confidence in the pensions industry.We had the best provisions in Europe.
mike kelly, northwich, england
I earn £45k. my company gave inflatory pay rises to all those earning less than £40k. the govt help those earning less than £40k. my cost of living has risen the same as everyone else yet apparently i will be able to absorb the impact. is it really necessary to have a Govt? all clueless
David, Cov,
Excuse me for being underwhelmed, but this £10 monthly rebate barely covers the increases in food and fuel costs over the past year. Of course if I were to save it rather than spend it the interest accrued would be below the real rate of inflation and would be taxed in any case. Good ol' Gordo.
Paul, Coventry,
Quite obvious really, the Govt. will tax every stage your money goes through - receiving it from work, in a pension, taking a pension out, leaving it in a bank... there are good reasons to why many still use the ol' "cash under the bed/in the attic" technique, despite the relative lack of safety.
Howard, Manchester,
The abolition of the lower rate was nothing less than a criminal act of robbery!
Once again, the middle earners lose out.
Sheer incompetence!!!
Darren ward, Manchester, UK
Couldn't agree more Melanie. In addition to my state pension I also get a very small pension from a previous employer. When I saw that the tax taken from this last source of income had DOUBLED then, my mind could hardly grasp that any Chancellor of the Exchequer could be so inept. What fools!
Ben, Sunderland, England
Well said Melanie and as a retired person who only gets a modest pension this is going to help but I will have to wait till October to get it.
If this government wants people to save it should reduce the tax it takes on their Savings as this is money they have paid tax on before saving it!
Itza, Camberley,
I think GAIN is the wrong word, it's more a case of RETURNING what he decided to steal from us this year. If he hadn't messed around with the 1p we wouldn't be £60 worse off than we were last year anyway.
Melanie, Wales,