Wages have risen sharply to keep up with inflation in recent years, making the impact of the first five years of this policy quite noticeable.
If the personal allowance had risen with inflation over the last five years, you would now be able to take home the first £16,070 of your pay without paying any income tax. Instead you pay 20% on anything you earn above £12,570.
The Institute for Fiscal Studies (IFS) estimates more than six million extra people will have been drawn into paying income tax by 2031 as a result of the frozen personal allowance threshold.
The IFS says if Healey had unfrozen the personal allowance this week, instead of keeping it in place until 2031, basic rate taxpayers would save up to £198 in tax a year.
Higher rate taxpayers would save £395 a year.
However, for people in the middle of the earnings range, a cut to Nics introduced in 2024 has offset the higher income tax bill.
How much of a difference “unfreezing” thresholds will make in four years’ time depends on how fast wages are going up at that point.
There is no fundamental principle at stake, no point that is the “right” level for tax thresholds. Before the financial crisis the personal allowance was much smaller than today, and it was allowed to grow until the pandemic hit. Even in 2031 you’ll be able to take home a bigger proportion of your earnings before income tax than you could back in 2008.
