Andy Burnham is facing pressure over tax allowances – and has hinted at change (Image: Getty)
The frozen lowest tax threshold, which has been blasted for hitting the poorest workers, could be changed by incoming Prime Minister Andy Burnham, it has been suggested. In an interview with The Times, the prime minister-in-waiting said the fact the tax-free allowance had been frozen at £12,570 for five years was “the thing I heard the most on the doorsteps” during the Makerfield by-election campaign.
The update comes as a series of campaigns have been waged to get a change made. Current Chancellor Rachel Reeves last November announced she was freezing all the income tax thresholds – which have been in place since 2021 – until 2031. It was due to end in 2028 and the extension will bring 920,000 people into the higher-rate tax band and 4,000 people into the 45 per cent additional rate by 2030. It will also force 780,000 people to pay income tax for the first time.
Mr Burnham told the Times about perceptions about him putting up taxes: “So when people, they’re just characterising me as a tax raiser, well again it’s never that simplistic is it? The breathing space point is a really serious one. How do we just make people feel better?”
Mr Burnham also said that he wanted more focus on “early investment” to ensure the state is “setting people up for success” rather than paying for failure. He said: “You have to rethink how we run things to get a different approach to public spending and running the economy which is much more focused on early investment, early intervention, setting people up for success and much less paying for failure.”
It is not known who Mr Burnham will make Chancellor, with Rachel Reeves tipped to leave, Shabana Mahmood and Ed Miliband have been tipped as being in frame. Whoever it is will face a campaign urging them to increase the lowest income tax threshold to £18,000.
A recently-launched petition on the Parliament website has gained significant traction since its inception, calling on Ms Reeves to reverse her decision to freeze the lowest income tax threshold of £12,570 until 2031. It has now hit 38,000 signatures – if it hits 100,000 signatures it will be considered for a parliamentary debate – putting whoever becomes Chancellor under pressure to consider change.
During the November Budget, Chancellor Rachel Reeves announced the extension of the tax thresholds freeze through to 2031. For the 2026/27 tax year, the standard UK Personal Allowance remains locked at £12,570, ensuring no income tax is levied on earnings below this level.
Britain’s most economically vulnerable workers risk being taxed as soon as their income surpasses that figure – and with the threshold remaining static, inflation and wage increases mean substantially more individuals are now subject to tax than would have been the case had it risen according to historical norms.
The petition, accessible here, which has almost 40,000 signups, 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.” Projections indicate that by 2027, the new state pension will surpass this threshold due to the triple lock mechanism, potentially placing pensioners at greater risk of increased tax liability. The matter has sparked multiple petitions, reflecting the strength of public sentiment nationwide.
Earlier this year, one campaign advocating for the threshold to be raised to £20,000 garnered an impressive 281,792 signatures on the Parliament platform before being closed to additional support during the summer.
In a reply to the petition before the exit of Sir Keir Starmer, the Treasury 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.
“The Government is committed to keeping taxes for working people as low as possible while investing in public services and not taking risks with the economy.”
This triggered a Westminster debate where the Treasury calculated the financial implications at £50 billion. Demonstrating the scale of public concern, a fresh petition has since emerged urging the income tax personal allowance to rise from £12,570 to £20,000.
The previous petition’s ranking amongst the most supported in the parliamentary website’s history was viewed by campaigners as powerful evidence of widespread public opinion on this matter. Currently, a basic tax rate of 20 per cent applies to earnings above £12,570, while higher earners face a 40 per cent rate on sums exceeding £50,270 – both thresholds have remained frozen since 2021. At the heart of the dispute lies ‘fiscal drag’, a phenomenon occurring when the personal income tax threshold stays frozen at £12,570 since 2021.
To view and back the petition click here.