Government makes a promise to taxpayers on minimum wage.
Our new government has promised that no-one working a 30 hour week on a minimum wage will ever have to pay income tax.
The Queen’s Speech outlined the new legislation that will realise this aim; national minimum wage increases and the income tax free personal allowance will now be connected. This means that if the national minimum wage goes up faster than the rate of inflation, workers will not end up having to pay income tax.
At the moment, if you work a 30 hour week for 48 weeks of the year on minimum wage then you earn £9,360. This keeps you under the tax free Personal Allowance amount of £10,600. As the margins are so close, many workers may have been concerned about the minimum wage going up just enough to mean that they then lose money in income tax payments. By interlinking the two amounts, the government are confident that this will not happen.
The Chancellor, George Osborne, has released specific figures to attach to their promise. The first rise will happen in October, when the minimum wage increases by 3%. The current hourly rate for the minimum wage is £6.50, which the government pledges will be £8.00 by 2020. Alongside this, the £10,600 Personal Allowance figure will also go up to £12,500 by 2020.
The new legislation also described plans to avoid any increases in National Insurance, Income tax and VAT for the duration of the new government.
There is widespread expectation that the link between inflation and Personal Allowance rates will also be applied to people in the Higher Rate tax bracket. As the latter has not kept up with the former, many people have been shoved into the higher rate tax bracket – the aptly named ‘fiscal drag’. This would be greatly welcomed by those workers who earn £42,385 annually and extend the positive message of the new government’s promise.
