Emergency measures compensate for 10p tax rate abolition

Chancellor of the exchequer, Alistair Darling, has announced changes to the personal tax system to help low-income employees affected by the abolition of the 10p starting rate of income tax.

Personal tax allowances for the 2008-09 tax year will be increased by £600 from £5,435 to £6,035. This means that 22 million people on low or middle incomes will gain an additional £120m this year. 

The chancellor also announced that the threshold at which individuals begin to pay tax at a higher rate of 40p would be reduced by £600.. To reduce the higher-rate threshold, the basic rate limit will be reduced from £36,000 to £34,800 so higher-rate taxpayers will see no difference in the amount of tax they pay.

Darling said: “My proposal for this year will not only help those on low incomes who lost out [because of the abolition of the 10p tax rate] but also does more to help all basic rate taxpaying families at a time when oil and food prices have been rising in every part of the world.

The changes will form part of this year’s Finance Bill, which is due to come into effect in September, but will be backdated to 6 April 2008.