Income tax cuts for basic rate payers

“...we have taken millions of people out of paying income tax altogether [and] basic rate taxpayers under this government have seen a tax cut equivalent of £1,000”  

Theresa May, 19 July 2017

It’s correct that millions of people now aren’t paying income tax when they otherwise would have been, due to increases in the income tax personal allowance, which we’ve summarised before. But this doesn’t mean all those people are taking home more money, due to wider changes to taxes and benefits.

According to government estimates, around an extra four million people have not had to pay income tax since 2010/11 due to an increase in the personal allowance, which is the amount that can be earned before tax has to be paid. This is currently £11,500, an increase from £6,475 in 2010/11.

The 2016 spring budget said “a typical basic rate taxpayer will pay over £1,000 less income tax in 2017-18 than in 2010-11”. Similar claims have been made in previous years. We’ve asked the Treasury for the analysis that the latest claim is based on.

This doesn’t mean that those paying less due to income tax changes are taking home more money. The Institute for Fiscal Studies found that when including changes to other taxes and benefits such as VAT and child tax credits, changes have led to “significant reductions in household income” for low-income households between 2010 and 2015.