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Britain to freeze personal tax thresholds until 2026

Britain's Chancellor of the Exchequer Sunak presents the budget box in London

By Alistair Smout

LONDON (Reuters) - Britain will freeze the amount of money that people can earn tax-free and also the threshold for the higher rate of income tax until 2026, finance minister Rishi Sunak said on Wednesday.

Sunak said that while the basic income tax rate of 20% and higher income tax rate of 40% would not be increased, the "personal allowance" of tax-free earnings and threshold at which the higher tax rate kicks in would not rise with inflation.

Sunak said the freeze was part of an approach to start fixing the public finances as he looks for ways to raise funds following unprecedented measures to support jobs and the economy during the coronavirus pandemic.

"This government is not going to raise the rates of income tax, national insurance or VAT. Instead our first step is to freeze personal tax thresholds," Sunak told parliament.

"We will, of course, deliver our promise to increase (the personal allowance) again next year to 12,570 pounds ($17,545) but we will then keep it at this more generous level until April 2026."

He said the higher-rate threshold would also increase next year to 50,270 pounds, as previously promised, but would then also be frozen for the same length of time.

That will generate more government revenue as earnings rise with inflation, pushing more people over the thresholds so that they have to pay more tax.

The Institute for Fiscal Studies think-tank said the four-year freeze would make the finance ministry 1.5 billion pounds in its first year and 8 billion pounds a year by 2025/2026.

The personal allowance threshold and higher rate threshold in England and Northern Ireland had previously been 12,500 pounds and 50,000 pounds a year respectively.

"Nobody's take-home pay will be less than it is now as a result of this policy," Sunak said.

"But I want to be clear ... that this policy does remove the incremental benefit created had thresholds continued to increase with inflation."

($1 = 0.7164 pounds)

(Reporting by Alistair Smout and David Milliken, Editing by Elizabeth Piper, James Davey and Catherine Evans)