A major campaign to increase the UK’s personal tax allowance from £12,570 to £20,000 has gained significant public support. With the threshold frozen since 2021, millions of low-income earners have found themselves paying income tax due to a phenomenon known as ‘fiscal drag.’ This has led to widespread frustration, particularly among workers and pensioners.
Public Demand Reaches Parliament
A petition advocating for the tax-free earnings limit to be raised has now gathered over 200,000 signatures, surpassing the required threshold for a debate in the House of Commons. The campaign argues that increasing the personal allowance would help ease the financial burden on lower earners and retirees, reducing their reliance on state benefits while stimulating economic growth.
The petition states: “Raising the personal tax allowance to £20,000 would lift many low earners out of benefits and allow pensioners to keep more of their hard-earned income.” It also highlights the unfairness of taxing pensioners on their state pension, which is often their primary source of income.
Government Response and Political Tensions
The call for change has sparked heated exchanges in Parliament. During Prime Minister’s Questions, Conservative leader Kemi Badenoch pressed Prime Minister Sir Keir Starmer to clarify his stance on tax thresholds. In response, Starmer highlighted the Labour government’s achievements, including increased NHS appointments and enhanced defense spending, but did not directly address the tax freeze issue.
Chancellor Rachel Reeves is set to deliver the Spring Statement on March 26, and many anticipate tax-related announcements. The government has previously stated that lifting the personal allowance would cost billions and could reduce funding for essential public services. A Treasury spokesperson confirmed that there are currently no plans to increase the threshold, citing fiscal responsibility.
Potential Impact on Workers and Pensioners
With tax thresholds remaining unchanged, individuals earning over £12,570 continue to be subject to the 20% basic income tax rate. The higher rate of 40% applies to those earning above £50,270. These thresholds, frozen since 2021, mean more people are being pushed into higher tax brackets as wages rise, effectively increasing the tax burden without an explicit rate hike.
Many taxpayers fear that Reeves’ upcoming budget could include additional ‘stealth taxes’ to generate revenue. The ongoing freeze has already impacted millions, with some middle-class workers and pensioners feeling the pinch the most.
Looking Ahead: What’s Next?
With growing public support for tax reform, pressure is mounting on the government to reconsider its stance. Whether the Labour administration will address these concerns in the upcoming budget remains to be seen.
For now, taxpayers are advised to stay informed and explore legal tax-saving strategies, such as maximizing their personal allowance, utilizing tax-free savings accounts like ISAs, and seeking financial advice.
FAQs
1. What is the current personal tax allowance in the UK?
The current personal tax allowance is £12,570, meaning individuals do not pay income tax on earnings below this amount.
2. Why is there a campaign to increase the tax allowance to £20,000?
Supporters argue that raising the threshold would help low earners and pensioners by reducing their tax burden and making them less reliant on benefits.
3. How many people have signed the petition for the increase?
Over 200,000 people have signed the petition, surpassing the threshold required for it to be debated in Parliament.
4. What is ‘fiscal drag,’ and how does it affect taxpayers?
Fiscal drag occurs when tax thresholds do not increase with inflation or wage growth, causing more people to be taxed at higher rates without an actual tax rate increase.
5. What is the government’s stance on increasing the personal tax allowance?
The government has stated that increasing the allowance to £20,000 would be too costly and could reduce funding for public services like healthcare and education.
6. When will the Spring Statement be delivered, and could it include changes to tax thresholds?
The Spring Statement is scheduled for March 26, and while tax-related announcements are expected, the government has not indicated plans to increase the personal allowance.
7. How can individuals legally reduce their tax burden in the absence of an allowance increase?
People can maximize their tax-free earnings by using ISAs, making pension contributions, and utilizing available tax reliefs to reduce their taxable income.
