Clause 3
Finance Bill
11:45 am
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
The clause increases the personal allowance for those aged under 65 by £130 above indexation. Over the last year we have announced a number of changes to personal tax which focus support now on low and middle income households while consolidating the fiscal position in the medium term, targeting those who can afford to pay more while protecting those with the lowest incomes.
In May last year, we announced an in-year rise in the personal allowance worth up to £120 to all basic-rate taxpayers. Most people saw the benefit of that change from last September. In the pre-Budget report, we announced further support for families, reflecting their difficulties at the moment. We rolled forward the increase in the personal allowance, and increased it by a further £130 above inflation. For 2009-10, that means that the tax free personal allowance will increase from £6035 to £6475. The clause makes that change.
The package of measures announced in the pre-Budget report, of which clause 3 is an important element, provides support to all low and middle-income families for the current period, and will mean that some 23 million taxpayers with an income under £40,000 will be, on average, around £145 a year—nearly £3 a week—better off in April 2011, compared to April 2008. Changes since the Budget last year will mean that 800,000 low-income households will be completely taken out of tax. The changes brought in by the clause will also fully compensate about 90 per cent. of households who would have otherwise been paying more net tax from the removal of the 10p tax rate, as we were discussing a few minutes ago.
New clause 2 would raise the age-related allowances for those aged 65 and over by £2,000 from its current level this year. The hon. Member for South-West Hertfordshire said earlier that this was part of a package that he estimated as costing £4 billion. I think that this particular part of it would cost some £1.2 billion. I guess from what he is saying that he envisages it being a one-year only increase in the age-related allowances, with the expectation that the age-related allowance would be reduced again in the following year. That would be an unusual thing to do; changes of this kind to age-related allowances really ought to be on an enduring basis, rather than a temporary basis. It is a significant downside to what he is proposing.
Mr. Atkinson, if I am able to catch your eye at the end of this short debate, perhaps I will say some more about new clause 2, but I commend clause 3 to the Committee.