The 2015-16 Income Tax Personal Allowance is £10,600, for 2016-17 the figure will be £11,000, for 2017-18 £11,500, and in his recent budget speech the Chancellor of the Exchequer announced ‘an ambition to increase the Personal Allowance to £12,500 by 2020, and a law will be introduced so that once it reaches this level, people working 30 hours a week on the National Minimum Wage won’t pay Income Tax at all.’
There are two things to say about an increasing Personal Allowance:
- It is true that a rising Personal Allowance takes many low income families out of paying Income Tax. This will be welcome. But it is also true that a rising Personal Allowance benefits the rich more than it benefits the poor, because for the rich, an increase increases their disposable income by the value of the allowance multiplied by the higher tax rate, whereas for low earners their disposable income rises by the value of the allowance multiplied by the basic rate. For anyone earning below the level of the Personal Allowance, an increase is worth nothing.
- The less income tax someone who believes that income should be redistributed pays, the more likely they are to vote for a right wing party. [note]Jane Gingrich (2014) ‘Structuring the Vote: Welfare institutions and value-based vote choices’, pp. 93–112 in Staffan Kumlin and Isabelle Stadelmann-Steffen (eds), How Welfare States Shape the Democratic Public: Policy feedback, participation, voting, and attitudes (Cheltenham: Edward Elgar), p. 109[/note]
- On the other hand: for Citizen’s Income schemes in which the extra tax revenue generated by reducing or abolishing the Personal Allowance is used to fund the Citizen’s Income, a higher Personal Allowance could be turned into a higher Citizen’s Income, which would contribute the same amount of additional disposable income to everyone.
An additional consequence of replacing the Personal Allowance with a Citizen’s Income is that it would require everyone earning a living to pay Income Tax, making it less likely that someone who believes that income should be redistributed would vote for a right wing party.