Thirty million workers will get a tax cut today when the latest rise in the basic rate threshold takes effect.
It means that workers will not start paying income tax until they earn £11,850 – a £350 rise on the level last year.
A typical basic rate taxpayer will pay £1,075 less in income tax this year than they did in 2010, when the coalition government began a radical programme to take the low-paid out of tax.
Chancellor Philip Hammond last night said the changes showed the Conservatives were determined to keep taxes low, despite dealing with the vast budget deficit left by the last Labour government
Higher rate taxpayers in England, Wales and Northern Ireland will also benefit, with the 40p tax threshold jumping from £45,000 to £46,350, producing an annual saving of £270.
Treasury figures suggest a typical higher rate taxpayer will pay £1,323 less in income tax than they did in 2010.
But the changes do not apply in Scotland, where the SNP government has used its tax-varying powers to hit the better-off. Some basic rate taxpayers will pay less, but anyone earning around £33,000 or more can expect a higher bill.
A series of other financial changes will also come into force today as the new tax year begins.
The National Living Wage will rise by 4.4 per cent, from £7.50 and hour to £7.83, benefiting more than two million workers. And the threshold for repaying student loans will rise from £21,000 to £25,000, saving graduates up to £360 a year.
Theresa May has vowed to keep to manifesto pledges to raise the basic rate threshold to £12,500 by 2020 and the higher rate level to £50,000 by 2020, meaning that further tax cuts will be introduced in the next two years
Chancellor Philip Hammond said yesterday the changes showed the Tories were determined to keep taxes low, despite dealing with the vast budget deficit left by the last Labour government.
‘From today, millions of people will have more pounds in their pocket and keep more of their hard-earned wages,’ Mr Hammond said. ‘By increasing the National Living Wage, cutting income tax and freezing fuel duty for the eighth year running, we are boosting living standards for millions of people this April, giving them more choice over how to use their pay packet and building an economy that works for everyone.’
Theresa May has vowed to keep to manifesto pledges to raise the basic rate threshold to £12,500 and the higher rate level to £50,000 by 2020, meaning that further tax cuts are expected over the next two years.
But beyond this there is also a fierce debate within Cabinet over how to raise billions more for the NHS promised by the Prime Minister. Health Secretary Jeremy Hunt is pushing for the introduction of a dedicated NHS tax, possibly funded by a 1p rise in National Insurance rates, which would raise £5billion a year.
But Mr Hammond is resisting the idea, insisting that the Government has to keep taxes low to distinguish itself from Labour.
The changes will also sharpen the debate in Scotland over the SNP’s approach.
Murdo Fraser, the Scottish Tories’ shadow finance secretary, warned that the growing divide in tax rates was ‘punishing’ enterprise.
‘It will reinforce Scotland’s reputation as the highest-taxed part of the UK, punishing hard work and aspiration in the process,’ he said.
But ministers are also braced for a backlash today when a new system of mortgage interest support is introduced for those on very low incomes.
Some 90,000 households currently have their mortgage interest paid by the government after losing their job or falling ill.
From today, the payments will end and be replaced by a government loan.
However, figures suggest only 13,000 families have signed up for the loan, while more than 30,000 have not even been informed of the change.
Helen Morrissey, a personal finance specialist at Royal London, called on ministers to delay the changes, saying: ‘The first many people are going to know about this is when their mortgage company contacts them to tell them they are in arrears.’