South Thanet MP, Stephen Ladyman, has welcomed the Chancellors announcement that 600,000 people on low incomes will no longer have to pay income tax.

Stephen Ladyman MP said:

"The changes that the Government introduced when it removed the 10p income tax rate made over 80% of people better off but some people on low incomes were worse off. That was wrong and I was one of the MPs that told the Government so, but I’m delighted they have acted and have put the matter right. By raising the personal allowance by £600 and backdating the change to April over 22 million people on low and middle incomes will gain an extra £120 this year."

"This is great news for people on low incomes in South Thanet. And since the change provides more help to about 17million people in the UK who were already better off thanks to the budget it will make it easier for people to deal with rising fuel prices and the increasing price of world goods."

"This Government has taken more people out of the tax system than any other. It has taken more people out of poverty than any other and it has done more for people on low incomes than any other. Well done Alistair Darling!"

The Chancellor has announced that, at a cost of £2.7 billion, he will increase the personal tax allowance by £600 to £6035 for this financial year, benefiting all basic rate taxpayers under 65.

This will mean that 22 million people on low and middle incomes will gain an additional £120 this year to offset their average loss. The tax liability of everyone that currently pays tax at 40 per cent will be unaffected by the increase in the personal allowance

It will also mean that 4.2 million households out of the 5.3 million households will receive as much – or more than – they originally lost, with the remaining 1.1 million households seeing their loss at least halved. 80 per cent of households are fully compensated with the remaining 20 per cent compensated by at least half. And in addition 600,000 people on low incomes will be taken out of tax altogether.

People aged between 60 and 64, whose average loss was £100 will also get the advantage of the increased personal allowance worth up to £120. They also receive the additional £50 Winter Fuel Payment for this year, which was announced in the Budget.

The increased personal allowance will apply to all income for this tax year and so will be backdated to 6 April. For future years the Government’s aim is to continue the same level of support for those on lower incomes. The Chancellor will bring forward proposals to do this at the Pre-Budget Report.

This measure represents the fairest and most effective way to help all those affected as a result of the changes proposed last year. In addition, this family tax cut provides support this year for those on middle incomes at a time where they face increased bills, so supporting the economy.

Key facts

From September basic rate taxpayers will see a one-off increase in their monthly income of £60 and then an increase of £10 per month for the rest of the financial year.

The tax liability of everyone that currently pays tax at 40 per cent will be unaffected by the increase in the personal allowance. As the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, the Government will reduce the threshold at which an individual starts to pay tax at the higher rate by £600.

Those brought into the higher rate will still gain by up to £120 this year.

The Government is able to finance this proposal through borrowing. It is sensible to allow borrowing to rise and investment to be maintained as the economy slows. Debt is lower than in the past and low by international standards. Our fiscal policy, like our monetary policy, is designed to support stability in these uncertain economic times generated by the turbulence in the financial markets and global commodity price inflation.

Raising allowances is simpler than other solutions. The Government considered the administrative practicalities of other options that were suggested, including a one-off rebate or compensatory payment as well as changes to the tax credit system to allow the average losses to be offset. However, we found that a rebate scheme would be complex and expensive to administer. It would also take time to set up and changes to the eligibility for tax credits could not be introduced this year.

Details on impact on families by income

Table below shows for 2008-09 the effect by income band of the increase in Personal Allowance by £600 for under-65s and the reduction in the higher rate threshold by £600.

It does not include the effect of tax credits of the age-related allowances for the over 65s, both of which stop certain groups from losing from the Budget 2007 changes.