Raising personal allowances

The tax credit system is a mess not that Gordon Brown would ever admit that. Those with incomes between around £5000 and £18000 are set to become reliant on credits as a result of the coming abolition of the lower rate of income tax.

Raising the personal tax allowance above its normal inflation link would go some way to fixing a problem created at this years Budget without having to admit that Mr Darlings predecessor as Chancellor and now boss adversely affected some people on low incomes. It could also score political points by rewarding hard working families as a response to the Tories proposal of returning to a Married Couples Allowance.

However the question is how the Chancellor might finance an above inflation increase. There is the easy approach of funding such a change through increases in green taxes although the amounts involved are not small.

The Treasury has indicated that changing personal allowances by £100 would cost £650 million in 200809 and £620 million in 200910 and changing age related personal allowances by £100 would cost £75 million in each of 200809 and 200910

05 October 2007 Moneyextra.com

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