An up to £6 billion annual increase, around 3 percent, to NHS funding is mooted as Prime Minister May scraps the limit of one percent on NHS funding increases that has been in place since 2010.
It was previously rumoured that there would be a specifically created new tax or deduction from pay to help fund the NHS but this move has been scrapped in favour for looking at a combination of sources for the increased funding requirement.
Whilst the exact breakdown of tax changes won't become apparent until the full Budget in November, a freeze on the tax-free personal allowance and higher-rate threshold is likely after 2020.
The Conservative government is committed to its existing pledge, from the 2015 election manifesto, to take the personal allowance to £12,500 and the higher rate threshold to £50,000 of gross income (£37,500 after allowances) by 2020.
The personal allowance was recently increased to £11,850 (a £350 increase from last year) and the higher rate threshold increased by £1,000 to £34,500 - so a higher rate taxpayer would need to be earning over £46,350 to start paying tax at the 40 percent rate.
Between now and 2020, the personal allowance would need to rise by £650 and the higher rate threshold by £3,000 to meet the figures the current government promised three years ago.
A freeze on the these after 2020 would go against inflation, currently RPI is around 3 percent. Using the 3 percent as an estimate basis, the allowances for the current and next two tax years would be:
|Tax Year||Personal Allowance||Higher Rate Threshold||Tax on £18k gross income||Tax on £20k gross income||Tax on £25k gross income||Tax on £30k gross income||Tax on £40k gross income||Tax on £50k gross income|
|2018/2019 (current)||11,850||34,500 (Gross Income 46,350)||1,230||1,630||2,630||3,630||5,630||8,630|
|2019/2020||12,200 (est.)||35,550 (Gross Income 47,750) (est.)||1,160||1,560||2,560||3,560||5,560||8,020|
|2020/2021||12,500 (est.)||37,500 (Gross Income 50,000) (est.)||1,100||1,500||2,500||3,500||5,500||7,500|
You can see how these tax bands interact using our income tax interactive, which is based on the current year's tax rates and rules.
After the 2020/2021 tax year, a freeze on the allowances will return to the Treasury inflation-based increases in tax as tax would not adjust to inflation working on salaries to reduce spending power. For example, using the inflation calculation here, £30,000 earned today is worth £900 less than last June (2017) based on both RPI and CPI - and according to the average salary index is around £600 less.