Ministers lifted the tax threshold by £1,000 to £7,475 in April 2011, meaning the first £7,475 of people's income is not liable for tax. A further £630 increase to £8,105 is due next month, while the coalition has pledged to ultimately raise the threshold to £10,000 by the end of this Parliament in 2015.
But speaking in his Budget statement, chancellor George Osborne (pictured) said: "In my last two Budgets, we have made great strides forward.?? Last year, the personal allowance rose by £1,000.?? In two weeks time, it will go up by another £630 to £8,105.?? Together, these increases have taken over a million low-income people out of tax.?? And today, I want to go much further and much faster.?? I am announcing the largest ever increase in the personal allowance – the amount people can earn tax free.?? From next April, that amount will increase by £1,100.
"??Every working person on low or middle incomes will benefit. People will be able to earn up to £9205 before they have to pay any tax. ??Millions of working people will be £220 better off every year.?? That’s £170 better off after inflation.?? Because higher rate earners will also benefit, 24 million people earning less than £100,000 a year will gain from this measure. We are in touching distance of the goal of £10,000 personal allowance that we all share."
Carol Dempsey, a partner at PwC, said: "This increase in allowance will please Liberal Democrats."
While Richard Mannion, national tax director at Smith & Williamson, added: "It was always going to be the case that personal allowances would increase by the end of the Parliament – but if benefits are going to go down, this seems like giving with one hand and taking with the other a little bit."
Andrew Sissors, researcher at The Work Foundation, said: "The key emphasis is on personal taxation – there is little on growth. The Government is not showing enough commitment to growth in the Budget.
"Tax allowances are a fiscally neutral measure – they will have to be compensated for. The best test will be when OBR publishes its policy review today.
"Primarily a political budget rather than a growth Budget, Osborne is passing the buck for economic growth to the Bank of England," said Sissors.
additional reporting by Tim Soare
