Basic rate tax payers are set to get £120 back this year as Alistair Darling raises the personal allowance by £600.
Alistair Darling has announced plans to up the personal tax allowance by £600 in a move that will see basic rate tax payers pocket an extra £120 later this year.
In what has be viewed as a major turnaround, the Chancellor has seemingly scrapped his last budget in an attempt to give the 5.3 million low and middle earners that lost out when the 10p tax band was abolished earlier this year a fairer deal.
Personal allowance will now sit at £6,035, relieving 600,000 individuals from their tax liabilities altogether and reducing the amount of tax a further 21.5 million will have deducted. However, 150,000 tax payers are set to lose out as the higher rate band is lowered by £600 to £40,835 to compensate.
The 'emergency compensation' will be delivered straight into tax payers' pay packets from September this year, initially with a lump sum payment of £60, followed by an additional £10 every month for the remainder of the tax year.
While this relief will not fully compensate all of those who were disadvantaged by the eradication of the 10p tax band, 4.2million individuals are set to receive at least as much as they lost, with some middle earners reaping double the benefit after already gaining from the drop in the basic tax rate.
The additional 1.1 million taxpayers that will still be left short by the removal of the 10p band, namely those that earn between £6,635 and £13,355 a year, should find themselves compensated by at least a half.
Despite this tax relief earning the government back some kudos after their earlier budget sent their popularity on a downwards spiral, there is still concern that this is a short term measure only, designed to alleviate the financial pressures on households this year only.
This is particularly concerning as the government have avoided drawing money from the already fragile economy by taking on a massive £2.7billion loan to fund the relief. Many are questioning whether, as the financial climate across the globe becomes increasingly shaky, it is the tax payer that will end up paying.
