New tax changes to persuade us to work harder

Johnson Reed
2m read

As part of the government’s attempts to ‘make work pay’ and generate savings in benefits, the recent Budget announced that there will be an increase in the personal allowance to £9,440 which will ‘benefit people working hard on ordinary incomes’.

This will come as good news to SMEs that will hopefully benefit from the fact that, theoretically, there will be more and more people looking for work in years to come. Chief Secretary to the Treasury Danny Alexander said that the coalition government is ‘working hard to help those on low and middle incomes’. His view is that,

“We think it’s important that we make work pay, that we reward people who are working hard on ordinary incomes and that is what the increase in the personal allowance will do. The wealthy are paying more in every year of this government than they did during the entire period Labour was in office.”

Shadow Chancellor Ed Balls meanwhile has claimed the changes are a ‘giveaway for the rich’. He’s begrudging the fact that his calculations make working families finances up to £4,000 worse off, while millionaires get average tax cuts of £100,000.

This year’s increase is all part of the coalition government’s plan to raise the allowance still further to £10,000 from 2014/15. From 2013/14 however, the higher age-related personal allowances will not be increased and their availability will be restricted to people who were born before 6 April 1948. This has given rise to accusations of a ‘granny tax’. Effectively the tax allowance for people aged 65 and over has been frozen at £10,500. So it’s tough luck for pensioners, but SMEs and other employers now have the incentive to take on extra people, knowing they have an extra £267 per year in their pay packets.