The Chancellor of the Exchequer, Alistair Darling, announced changes to the personal tax system to help low-income earners affected by the abolition of the 10% starting rate of income tax.

The personal allowance for the 2008—09 tax year will be increased by £600 from £5,435 to £6,035, and the threshold at which someone starts to pay higher rate tax will be reduced by £600.

The point at which individuals start to pay higher rate income tax is sometimes called the “higher rate threshold”. It is the total of the personal allowance and the basic rate limit. To reduce the higher rate threshold as announced by the Chancellor, the basic rate limit will be reduced by £1,200 from £36,000 to £34,800. Higher rate taxpayers will see no difference in the amount of tax they pay.