Press Release: Personal allowance increase does little for those on lowest incomes
Commenting on the increase in the personal allowance from £11,850 to £12,500 from 6 April 2019, Victoria Todd, Head of LITRG team, said:
“Personal allowance increases are often welcomed as helping those on low incomes. However, such increases do not benefit those on the lowest incomes at all, or benefit them by a lower amount than those with higher incomes.
“Those earning under the current personal allowance of £11,850 will see no gain from this change. Those earning above £11,850 may benefit but it depends on whether they receive tax credits or other means-tested benefits such as Universal Credit.
“This is because Universal Credit, like other means tested benefits, is based on net income (after tax and National Insurance have been deducted). As the amount of tax they pay reduces, their Universal Credit award also reduces. They will not see the full tax gain of £130 from the increase in the personal allowance; instead, they will only gain overall by £48.10, as their Universal Credit award will be reduced by £81.90. However, those earning above £11,850 who receive tax credits will benefit from the full £130 because tax credits are based on gross income.
“LITRG has previously commented that a better method of assisting those on the very lowest incomes would be to restore the previously cut work allowances in Universal Credit. We therefore welcome the fact that the work allowance is to be increased by £1,000 per annum from April 2019. Unfortunately, this increase is limited to households with children and people with disabilities, and will not assist all Universal Credit claimants.
“In addition, the Government could consider increasing the National Insurance primary threshold. This has now lagged behind the personal allowance for a long time. This would allow more people to earn National Insurance credits without actually having to pay National Insurance contributions.”