Pre-Budget Report 2008: what it means for personal taxes

27 November 2008

Just as the Chancellor’s temporary tax cuts came as no surprise, so too his announcement of plans to raise taxes in the future to help reduce extra levels of government borrowing were not unexpected.

As from April 2011, Class 1 and Class 4 NICs are to be increased by 0.5 per cent, that is for employees, employers and the self-employed. The rise is expected to generate £5.4 billion in government revenue.

More immediately, as from April 2009, the starting thresholds for NICs will be more closely aligned with income tax rates.

From April 2011, taxpayers earning more than £150,000 a year will pay an increased tax rate of 45 per cent.

The personal allowances – income on which no tax is paid – of high earners are also to change. As from April 2010, those on incomes of between £100,000 and £140,000 will see their personal allowances reduced by half. For those earning more than £140,000, the allowance will be dropped.

The increase in the income tax personal allowance of £120 a year for basic rate taxpayers is to be made permanent and to be raised to £145 in April 2009 for those under 65.

Despite the proposed rise in NICs, the government said that anyone who earns under £40,000 will actually pay less tax in real terms in 2011 because personal allowances will climb by more than the rate of inflation, dampening the effects of the extra NI charges.

Opponents, however, say that the changes will mean an extra tax burden for those earning more than £40,000 and have argued that even those earning less than £40,000 will still pay nominal amounts in additional tax.