Budget 2015 means tax cuts for 27 million people

New measures will benefit millions, according to Treasury calculations

Updated: 
U.K. Chancellor Of The Exchequer George Osborne Delivers 2015 Spring Budget

Some 27 million people will receive a tax cut and 3.7 million be taken out of income tax altogether as a result of George Osborne's announcement that the threshold for paying the basic 20p rate will rise to £11,000 by 2017, according to Treasury calculations.

Meanwhile, above-inflation rises in the level at which 40p income tax kicks in will result in 100,000 fewer taxpayers at the higher rate - reversing the trend of "fiscal drag" which has seen ever more people sucked in to the 40p band over recent years.

The changes set out by Mr Osborne represent the first steps towards the goal set out by David Cameron at last year's Conservative conference for a personal allowance - below which no income tax is payable - of £12,500 and a higher rate threshold of £50,000 by the end of the next Parliament in 2020.

Treasury aides said that the increase in the personal allowance from £6,475 when the coalition came to power in 2010 to £10,600 next month, £10,800 in April 2016 and £11,000 in April 2018 were worth a total of £905 to basic-rate taxpayers and £848 to those paying the higher rate.

The changes announced today are worth £80 to basic-rate taxpayers and £172 to those paying the 40p rate, and will cost the Exchequer £960 million in 2016/17, £1.48 billion in 2017/18, £1.585 billion in 2018/19 and £1.68 billion in 2019/20.

Because the increase in the personal allowance is not offset by a reduction in the 40p threshold, higher-rate taxpayers benefit in full from today's announcements.

This has enabled the Chancellor to deliver a 1.4% hike in the higher-rate threshold - the first above-inflation rise for seven years.

This brings the level at which the higher rate is payable up from £41,865 now to £42,385 in April 2015, £42,700 in April 2016 and £43,300 in April 2017.

The figures set out by the Chancellor imply that Conservatives would require a dramatic leap in the higher-rate threshold in the final years of the next Parliament in order to reach Mr Cameron's target by 2020. But Treasury sources described today's announcement as a "down-payment" on future increases, and pointed out that levels could be revised upwards at subsequent budgets if Tories win the May 7 election.

An aide to the Chancellor insisted that hitting Mr Cameron's targets by 2020 would be "affordable" in the context of the £7 billion surplus which the Government is forecast to be running by the last year of the Parliament. And he added: "We have shown during this Parliament that we are able to cut taxes and reduce the deficit at the same time."

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