Budget – Consumer Prices IndexThursday, March 24th, 2011
The June 2010 Budget announced that the default indexation for direct taxes, including income tax and NICs, will be the (lower) Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from April 2012. However, to ensure employers and older people do not lose out, the Government has confirmed that there will be some exceptions to this general policy.
For the duration of the current Government (assumed to be 2016), the following thresholds and allowances will be increased by the equivalent of the RPI:
- the secondary NICs threshold (ST)
- the starting rate limit for savings income
- income tax age-related allowances
- age-related income limits
- married couples allowance
- blind persons allowance.
The NICs upper earnings limit will remain aligned with the higher rate tax threshold.
The indication, therefore, is that the lower earnings limit (LEL) and the primary NICs threshold (PT) will be increased by the CPI, with the effect that, in coming years,
- the gap between the LEL and the PT, which widened considerably for 2011/12, will narrow, and
- the ST, which is currently a little lower than the PT, is likely to be higher than the PT.