A petition calling for the personal tax allowance to be raised to £18,000 has passed 50,000 signatures, half the number needed for it to be considered for a debate in the Commons. The petition, which remains open for signatures until 30 September, aims to put pressure on Chancellor John Healey to change the rules.
The £12,570 threshold has been frozen since 2021, dragging more people into paying income tax as earnings rise. The Institute for Fiscal Studies (IFS) has estimated that unfreezing the threshold could cost £8.5-9bn a year.
Freeze extended to 2031
In March 2021, then Chancellor Rishi Sunak announced that inflation uprating of income tax thresholds would be suspended and the allowance frozen at its April 2021 level of £12,570 until April 2026. That freeze was later extended, first by two years under Jeremy Hunt and, most recently, by a further three under Rachel Reeves. Under current plans, the personal allowance will remain at £12,570 until April 2031.
Had it been uprated in line with inflation since April 2021, the personal allowance would today stand at £16,070 – £3,500 higher than its actual level, the IFS said this month. It said: "This represents a 22% real-terms reduction in the value of the personal allowance between 2021–22 and 2026–27, with a further 8% reduction expected by 2030–31."
Impact on pensioners
Fresh figures reveal that pensioners paid approximately £8bn more in tax last year after frozen personal allowances dragged individuals into higher tax brackets. The total tax burden on retirees soared from £21.1bn to £29.8bn, an increase of more than 40 per cent in just two years, according to the latest HMRC pension participation data. From next year, those in receipt of the full new state pension will exceed the frozen £12,570 personal tax allowance threshold.
The petition states: "Raise the personal tax allowance to £18,000. Since 2021 personal tax allowance has been frozen at £12,570. This freeze was due to expire this year but the Chancellor of the Exchequer has extended it to 2031. We want to keep some more of our own money. If you are earning minimum wage then you may soon be paying tax because of fiscal drag. Some higher earners pay little or no tax due to clever use of accounting rules. We think this is so wrong."
Government response
Following the petition amassing 10,000 signatures, the Treasury issued an official response. It stated: "Raising the Personal Allowance to £18,000 would reduce tax receipts substantially, decreasing funds available for the UK's hospitals, schools, and other essential public services that we all rely on. A £40 billion cut in public services is equivalent to slashing roughly a fifth of the NHS Budget in England, or around two thirds of defence spending."
The response added: "The Government currently has no plans to increase the Personal Allowance to £18,000. Increasing the Personal Allowance to £18,000 would come at a significant fiscal cost of over £40 billion per year. This would also benefit higher earners more than basic-rate taxpayers on average."
Andy Burnham disclosed that when he was campaigning to become Prime Minister, the personal tax allowance was the single biggest issue raised on doorsteps, and it had 'lodged in my mind'. Despite this, the Government has signalled that changes to the threshold will not form part of its initial measures to ease the cost of living crisis.
