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Tax changes 'to benefit workers'

Proposals to further increase the amount of money people can earn tax-free means workers will be nearly £50 a year better off from next April, Chancellor George Osborne has announced.

The personal tax allowance is to be increased by £630 to £8,105 in time for the start of the 2012/13 tax year, which will save individuals £48 a year in real terms, or £126 in cash terms.

Mr Osborne said that the hike, which is in addition to the planned rise of £1,000 that comes into force next month, will result in basic rate taxpayers contributing £326 a year less to HM Revenue and Customs (HMRC). He also dubbed the new 50 per cent income tax rate as a "temporary measure".

Pensioners were also told they would not have to pay higher taxes as ministers revealed that a consultation on proposals to merge income tax and national insurance is to take place.

Pensioners and other members of society who rely on investments for their livelihood do not pay national insurance as it is a tax on earnings rather than income. The national insurance contributions made by individuals are also used as a basis for qualifying for a number of benefits, including the basic state pension.

Mr Osborne said: "I am not proposing we extend national insurance to pensioners, or to other forms of income, or that we abolish the contributory principle. Our purpose is not to increase taxes, it is to simplify them."

Copyright © Press Association 2011

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