A surprise cut in the basic rate of income tax from 22 per cent to 20 per cent was the highlight of a cocktail of complicated changes to income tax and National Insurance announced by the chancellor on Wednesday.
Gains from the 20 per cent basic rate, due to take effect from April 2008, will be offset by the abolition of the 10 per cent lower rate band. The picture of winners and losers is further confused by the increase to £43,000 in the 40 per cent top-rate tax threshold from 2009 and an increase in the upper band in National Insurance.
Less ambiguously, the chancellor promised to take several hundred thousand pensioners out of the income tax system with planned increases in personal allowances for the over-65s. The tax-free allowance will rise from £7,280 in the current tax year to £9,770 by 2011, or £10,000 for the over-75s.
Meanwhile, the amount that savers can put into cash ISAs has been raised to £3,600 from April 2008.
The 125,000 victims of collapsed final salary schemes provided by former employers were offered an additional £6bn lifeline. The extra money will be made available to the Financial Assistance Scheme to help these pensioners.
The chancellor also announced that the level at which much-hated inheritance tax kicks in will rise to £350,000 in 2010. But smokers and drinkers, excepting quaffers of spirits, are being hit with the traditional duty increases.