𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

People wanting to put pressure on new Prime Minister Andy Burnham to reform the lowest tax threshold have a month to take action. A petition on the parliament website has been backed by 63,000 people – and if 100,000 sign up then it will be considered for a debate – which would put pressure on the government to set out its position and consider changes.

The personal tax threshold of £12,570 has been frozen since 2021 – this means anyone earning money over this limit is taxed. It has been criticised for creating ‘fiscal drag’ meaning many of the poorest paid workers are paying more and more tax as inflation sees wages rise.

The petition, which is only open until September 30, and which was created by Mike Haynes says: “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.”

Then Chancellor Rachel Reeves last November extended the freeze to 2031.

Writing for the Institute for Fiscal Studies Isaac Delestre this month said: “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. By 2030–31, the gap between the personal allowance and where it would have been had it not been frozen will (under current inflation forecasts) reach £4,870. 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.”

The Treasury has responded to the petition and has rebuffed any suggestion the basic tax rate of 20% over £12.570 should be changed. Officials said: “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.

“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 income tax system is highly progressive, with different rates of tax sitting above an internationally high Personal Allowance.

“The Government is making these fair and necessary choices on tax so it can deliver on the public’s priorities. Alongside this, the Government is keeping the contribution as low as possible by pursuing a programme of reform to fix longstanding issues in the tax system.”