Pre-election pledges to improve the rewards of work for lower earners by increasing personal allowances and reversing planned national insurance increases have survived in the emergency June Budget, in the form of a welcome £1,000 tax break for those on lower incomes and a small per employee national insurance saving for employers. We welcome the news that the 880,000 lowest income taxpayers should be removed from income tax altogether and 23 million taxpayers should benefit by up to £170 per year.

In these frugal times, the measure is carefully targeted. Higher rate taxpayers will be carved out from these benefits by adjustments to the higher rate income tax threshold.
Alongside major increases in VAT and capital gains tax, these changes represent the partial reinvestment of those additional tax receipts in benefits for lower earners. The Budget document is more ambitious still, setting a long term objective to raise the personal allowance to £10,000 with 'real terms progress towards that goal every year'.

In the context of a complex package of tax increases and rate reductions for companies, these are tools to signal to business that the coalition Government is keen to reinvest in employment, albeit in the current climate it is inevitable that this is only a fairly marginal step towards reducing the cost of hiring and retaining staff.