Personal allowance to rise with minimum wage

27th May 2015


Anybody who works 30 hours a week on the minimum wage will pay no income tax, under a new pledge by the Government in the Queen’s Speech.

Ahead of the Queen’s Speech  today, Prime Minister David Cameron said: “Behind this Queen’s Speech is a clear vision for what our country can be. A country of security and opportunity for everyone, at every stage of life.

“That is our ambition. To build a country where whoever you are and wherever you live you can have the chance of a good education, a decent job, a home of your own and the peace of mind that comes from being able to raise a family and enjoy a secure retirement.A country that backs those who work hard and do the right thing.

“This is the Queen’s Speech for working people from a ‘one nation’ government that will bring our country together. We have a mandate from the British people, a clear manifesto and the instruction to deliver. And we will not waste a single moment in getting on with the task.”

Cameron said that as part of the Government’s long-term plan to back working people and make work pay, he is determined to reward work by letting people keep more of the money they earn.

He added: “The government has already committed to raising the income tax personal allowance to £12,500 by 2020. Today the government is going further in its actions to offer more security to working people by confirming that legislation will be brought forward to ensure that future increases to the Income Tax personal allowance reflect changes to the National Minimum Wage.

“This will mean that people working 30 hours a week on the minimum wage will not pay any Income Tax.”

Cameron said that increases in the personal allowance during the course of this Parliament are expected to benefit around 30 million working people.

Old Mutual Wealth tax and financial planning expert Rachael Griffin says: “Linking the personal allowance to the minimum wage is a significant shift in UK tax policy. It will put an end to so-called ‘fiscal drag’ that has seen more lower earners paying income tax on a portion of their earnings as inflation increases slower that the minimum wage.

“The policy is consistent with the trend during the last parliament of tax reductions on earned income.

“However, taxpayers should bear in mind that while we are currently in a low inflation environment coupled with planned minimum wage increases, this won’t continue indefinitely. In times when the reverse is true and inflation rises faster than the minimum wage, workers could suffer from a decline in spending power, without the income tax threshold increasing at the same rate.”


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