Personal tax allowance to track minimum wage, says government

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Future increases in the income tax personal allowance will be linked to rises in the national minimum wage, the government has announced.

New legislation in the Queen's Speech will mean that the amount workers are allowed to earn before paying tax is likely to rise faster than inflation.

The national minimum wage for adults is due to rise by 3% in October, the largest real-terms rise in seven years.

Chancellor George Osborne has said it will rise from £6.50 to £8 by 2020.

The personal allowance is currently £10,600, but is due to rise to £12,500 by 2020.

As a result, the government is promising that no one working for 30 hours a week on the national minimum wage will pay tax.

At the moment, an adult working for 48 weeks a year at that rate earns £9,360, so is below the tax threshold.

However, the new law will prevent such workers having to pay tax when the national minimum wage rises at a faster rate than inflation, which is currently -0.1%.

It is also expected that the increases will feed through to the higher rate tax threshold, suggesting that the higher rate could also rise faster than inflation.

That will benefit workers who currently earn more than £42,385 a year.

Such taxpayers have been affected by so-called fiscal drag, under which more people were dragged into a higher tax bracket, as the allowance failed to be uprated in line with inflation.

Legislation being outlined will also prevent rises in income tax, VAT and national insurance during the current Parliament.

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