New Prime Minister Andy Burnham has promised to 'look at' raising the tax-free Personal Allowance in the next Budget but stopped short of making any 'commitment'. Reports from Bloomberg suggested Mr Burnham may have already dropped plans internally to thaw out the frozen tax allowance, which has been set at £12,570 for the past five years and is set to stay frozen until 2031.
Background on the tax-free allowance freeze
The allowance is the amount individuals can earn before they owe tax on their income, and has been stuck at £12,570 since 2021. Ex-Chancellor Rachel Reeves announced last year that the hold on the threshold is set to continue at least until 2031, a move dubbed a 'stealth tax rise' as it pushes more people into paying tax, or paying more tax, as wages increase.
Burnham's previous hints and current stance
Mr Burnham has previously hinted that he wants to tackle the tax-free earnings threshold. He told The Times that “frustration” about the five-year-long freeze had “lodged in my mind” during his campaign to win the Makerfield by-election. However, according to Bloomberg reports, the new PM is not considering raising the tax-free Personal Allowance after all, as he attempts to signal fiscal discipline to bond and gilt markets.
Burnham and his new Chancellor John Healey pledged financial discipline at the first meeting of the new cabinet on Tuesday while repeating the goal to ease the cost of living for millions of voters. “We’ve got to show that our commitment to the fiscal rules is real, and we’re prepared to make difficult decisions in relation to that,” Burnham said.
Further reports this morning have put the rise back on the table, although with no iron-clad promise. Mr Burnham is quoted as saying: “There is no commitment at this point to change, but we will look at that at in the Budget”, according to PoliticsUK.
Expert warnings and campaigner response
Experts including Dan Neidle, founder of Tax Policy Associates Ltd, warned that increasing the tax-free Personal Allowance is 'a bad tax cut' because even a £500 increase, taking the limit to £13,070, would cost billions to implement. Instead, it would be cheaper to cut National Insurance. The news will come as a blow to campaigners. A petition urging the government to raise the tax-free allowance to £18,000 has now been signed by nearly 40,000 people.
