PBR 09: Freezing personal allowances ‘will raise £2.2bn for Treasury’

The chancellor’s announcement to keep personal allowances at their current
rate will not provide the “real term benefits” promised, and is a “stealth tax”
that will raised £2.2bn for the Treasury, according to BDO.

Chancellor Alistair Darling said in his PBR speech that he had “decided
against any further changes to income tax rates or thresholds next year”, adding
that “because RPI inflation was negative in September, [freezing the personal
allowances] will provide a real terms benefit relative to inflation”.

This is expected to yield around £2.2bn for the Treasury, which would be the
largest effective tax increase after the National Insurance increases.

However Stephen Herring, senior tax partner at BDO, said: “The government has
claimed that the country’s negative RPI will, in real terms, mean that taxpayers
still enjoy a net benefit.

“However, many taxpayers would have expected at least a small increase in
personal allowances as some prices are still increasing such as petrol, utility
bills and council tax.

“In essence, freezing personal allowances is effectively a stealth tax as
taxpayers focus more closely upon the rates of income tax, national insurance
and VAT.”

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