Fairness1.205 The government’s long-term economic plan is underpinned by a firm commitment tosupport those who want to work hard and get on, while continuing to support and protectthe most vulnerable in society. The government’s ambition is to build a stronger economyand a fairer society. This <strong>Budget</strong> builds on the government’s priorities over this Parliament ofhelping families and making work pay by raising the personal allowance and reducing theburden of Income Tax for the lowest paid; supporting and rewarding savers at every stage oftheir life; and taking firm action to tackle tax evasion and avoidance. The government’s welfarereforms continue to promote work and personal responsibility, while putting expenditure on asustainable footing.1.206 As a result of the government’s reforms to tax, welfare and public spending across theParliament, the richest households will make the biggest contribution to reducing the deficit,both in cash terms and as a proportion of their income.Supporting householdsPersonal allowance1.207 The government’s commitment to reduce taxes for low and middle-income earnershas been a centre piece of this Parliament. The Coalition Agreement commitment to raise theIncome Tax personal allowance to £10,000 over the course of this Parliament was achieved ayear early in 2014-15. From April <strong>2015</strong>, the personal allowance will be increased to £10,600,from £6,475 in April 2010.1.208 <strong>Budget</strong> <strong>2015</strong> announces that the personal allowance will be increased to£10,800 in 2016-17 and to £11,000 in 2017-18. The Marriage Allowance will also risein line with the personal allowance.1.209 The successive increases in the personal allowance total £4,525 since 2010, representinga rise of 70% under this government. Taken together, these changes will benefit 27.2 millionindividuals and provide a cash gain of £905 to the typical basic rate taxpayer in 2017-18. By2017-18, the government will have taken 3.7 million working-age individuals out of Income Taxaltogether.1.210 To ensure the full gain of the personal allowance increase is passed on tohigher-rate taxpayers, the higher-rate threshold will rise in line with the personalallowance, taking it to £42,700 in 2016-17 and £43,000 in 2017-18. This is the firstabove-inflation increase in the higher-rate threshold for 7 years. A typical higher-rate taxpayerwill have a cash gain of £848 by 2017-18.1.211 The cumulative impact of these changes has significantly reduced the effective tax ratepaid by individuals. In 2010, an individual earning £20,000 paid £2,705 in Income Tax. By 2017,an individual earning £20,000 will pay £1,800 in Income Tax, equivalent to a 33% reduction inthe tax paid. The effective tax rate for an individual earning £20,000 in 2017-18 will be 9%.1.212 Someone working full time on the National Minimum Wage (NMW) in <strong>2015</strong>-16 will earnaround £12,000. In 2010, an individual earning £12,000 paid £1,105 in Income Tax. In 2017-18, an individual earning £12,000 will pay £200 in Income Tax, an 82% reduction in tax paid.The effective tax rate for an individual earning £12,000 in 2017-18 will be 1.7%.54 <strong>Budget</strong> <strong>2015</strong>
Chart 1.11: Personal allowance: impact on an individual earning £20,000 per year£25,00025%Earnings£20,000£15,000£10,000£5,000£200 £326£593 £705 £825 £865 £90520%15%10%5%Average effective tax rate£02010-11 2011-12 2012-13 2013-14 2014-15 <strong>2015</strong>-16 2016-17 2017-18Years0%Personal allowance (including cash gains)Average effective tax rateIncome subject to taxNotes:1) This is based on an individual with earnings of £20,000 in each year2) The average effective tax rate is for income tax only3) The gains refer to the cash gains since 2010Chart 1.12: Personal allowance: cash gains£1,000£900£800Annual cash gains£700£600£500£400£300£200£100£02011-122012-132013-142014-15<strong>2015</strong>-162016-172017-18Annual cash gain for typical basic rate taxpayersAnnual cash gain for typical higher rate taxpayers<strong>Budget</strong> <strong>2015</strong>55
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