Minimum Wage: Tax Allowances

Treasury written question – answered on 20th October 2021.

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Photo of Duncan Baker Duncan Baker Conservative, North Norfolk

To ask the Chancellor of the Exchequer, what assessment he has made of the potential merits of increasing the personal allowance in proportion to rises in the National Minimum Wage to ensure as much tax-free income as possible is earned by people on the lowest wages; and what steps he is taking increase the personal allowance to protect as many as people as possible on the lowest earnings from the effects of inflation.

Photo of Lucy Frazer Lucy Frazer The Financial Secretary to the Treasury

The Government remains committed to protecting the living standards of the lowest earners and has taken action to do this. Increases to the real terms value of the Personal Allowance by nearly 50 per cent in the last decade mean that, compared to 2010-11, a typical basic rate taxpayer will pay over £800 less Income Tax in 2021-22.

The Government must also ensure the sustainability of the public finances to fund excellent public services and has done so in a fair and progressive way by maintaining the Income Tax Personal Allowance and Higher Rate Threshold at 2021-22 levels. The 20 per cent highest income households will contribute 15 times that of the 20 per cent lowest income households.

At £12,570, the Personal Allowance is the highest basic personal tax allowance of all countries in the G20, and it remains one of the most generous internationally.

On 1 April 2021, following the recommendations of the Low Pay Commission (LPC), workers on the National Living Wage saw a 2.2 per cent pay increase to £8.91 an hour. The Government remains committed to supporting low paid workers and looks forward to receiving the recommendations for the 2022 National Living and Minimum Wage rates from the independent LPC this Autumn.

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