Income Tax: Tax Rates and Bands

HM Treasury written question – answered on 22nd January 2018.

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Photo of Neil O'Brien Neil O'Brien Conservative, Harborough

To ask Mr Chancellor of the Exchequer, what estimate he has made of the monies accrued to the public purse of (a) freezing the personal allowance at £12,000 and (b) freezing the higher-rate threshold at £50,000 in each of the years after 2020-21.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

An error has been identified in the written answer given on 12 January 2018.

The correct answer should have been:

The estimated Exchequer impact of freezing the personal allowance at £12,000 and freezing the higher-rate threshold at £50,000 in 2021-22 and 2022-23 is:

£m bn

2021-22

2022-23

Exchequer Impact of a Freeze of the PA at £12,000 and the HRT at £50,000

1,800

3,900

Figures have been rounded to the nearest £100 million. The The impact is shown on a National Accounts basis consistent with the presentation in table 2.1 of Budget documents

The government remains committed to increasing the PA to £12,500 by 2020-21. The estimated Exchequer impact of freezing the personal allowance at £12,500 and freezing the higher-rate threshold at £50,000 in 2021-22 and 2022-23 is:

£mbn

2021-22

2022-23

Exchequer Impact of a Freeze of the PA at £12,500 and the HRT at £50,000

1,800

4,000

Figures have been rounded to the nearest £100 million. Therefore the modelling simulation above has been repeated with the PA set to £12,500 in 2020-21, frozen thereafter (the HRT was as in the £12,000 scenario above).

Both of these estimates are sensitive to any changes in the projected economic determinants used, and modelling assumptions, and are therefore subject to revision.

[To answer this question a number of assumptions have been made as set out below. These estimates are consistent with the methodology used to estimate the impact of policy changes to Income Tax and National Insurance Contributions (NICs).

The question implies that the Personal Allowance (PA) and Higher Rate Threshold (HRT) would be at the stated levels in 2020-21 in order that they be frozen at those levels (rather than indexed with Consumer Price Index (CPI) indexation as is the convention) for the years after that.

The Exchequer impact of meeting the thresholds in 2020-21 has is not included in these figures.

The estimated impact from freezing the PA and HRT has been modelled using the 2014-15 Survey of Personal Incomes projected using assumptions from the Office of Budget Responsibility’s November 2017 economic and fiscal outlook. The costs set out below include assumptions on the likely behavioral responses of affected taxpayers, which is in line with previous similar costings agreed with the OBR.

The costing include the impact on NICs, as the Upper Earnings Limit and Upper Profits Limit are aligned to the Higher Rate Threshold which has been frozen at £50,000 for this policy.

The simulation assumes the HRT freeze does not apply in Scotland where this threshold is devolved. Therefore the Scottish Basic Rate Limit (BRL) is amended to maintain the Scottish HRT at the current projected levels after any changes to the PA. The simulation includes an estimate for the change in the Scottish block grant adjustment under this policy change scenario.

Does this answer the above question?

Yes2 people think so

No1 person thinks not

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Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

The estimated Exchequer impact of freezing the personal allowance at £12,000 and freezing the higher-rate threshold at £50,000 in 2021-22 and 2022-23 is:

£m bn

2021-22

2022-23

Exchequer Impact of a Freeze of the PA at £12,000 and the HRT at £50,000

1,800

3,900

Figures have been rounded to the nearest £100 million. The The impact is shown on a National Accounts basis consistent with the presentation in table 2.1 of Budget documents

The government remains committed to increasing the PA to £12,500 by 2020-21. The estimated Exchequer impact of freezing the personal allowance at £12,500 and freezing the higher-rate threshold at £50,000 in 2021-22 and 2022-23 is:

£mbn

2021-22

2022-23

Exchequer Impact of a Freeze of the PA at £12,500 and the HRT at £50,000

1,800

4,000

Figures have been rounded to the nearest £100 million. Therefore the modelling simulation above has been repeated with the PA set to £12,500 in 2020-21, frozen thereafter (the HRT was as in the £12,000 scenario above).

Both of these estimates are sensitive to any changes in the projected economic determinants used, and modelling assumptions, and are therefore subject to revision.

[To answer this question a number of assumptions have been made as set out below. These estimates are consistent with the methodology used to estimate the impact of policy changes to Income Tax and National Insurance Contributions (NICs).

The question implies that the Personal Allowance (PA) and Higher Rate Threshold (HRT) would be at the stated levels in 2020-21 in order that they be frozen at those levels (rather than indexed with Consumer Price Index (CPI) indexation as is the convention) for the years after that.

The Exchequer impact of meeting the thresholds in 2020-21 has is not included in these figures.

The estimated impact from freezing the PA and HRT has been modelled using the 2014-15 Survey of Personal Incomes projected using assumptions from the Office of Budget Responsibility’s November 2017 economic and fiscal outlook. The costs set out below include assumptions on the likely behavioral responses of affected taxpayers, which is in line with previous similar costings agreed with the OBR.

The costing include the impact on NICs, as the Upper Earnings Limit and Upper Profits Limit are aligned to the Higher Rate Threshold which has been frozen at £50,000 for this policy.

The simulation assumes the HRT freeze does not apply in Scotland where this threshold is devolved. Therefore the Scottish Basic Rate Limit (BRL) is amended to maintain the Scottish HRT at the current projected levels after any changes to the PA. The simulation includes an estimate for the change in the Scottish block grant adjustment under this policy change scenario.

Does this answer the above question?

Yes0 people think so

No0 people think not

Would you like to ask a question like this yourself? Use our Freedom of Information site.