Update on calls to lift private tax allowance to £20,000 ‘in 2 days’ with Commons conflict

A ‘fiscal drag’ showdown will take place between MPs because support for changes to income tax thresholds has gained massive backing

A whopping 249,857 people have thrown their weight behind a campaign demanding Chancellor Rachel Reeves to hike up the tax-free income limit – and it’s all set for a showdown in Parliament this Tuesday.

The petition, which has received surging backing, is due for a natter in the House of Commons on May 12 and people can watch it unfold on Parliament TV. Alan Frost, who started the petition, is urging the government to: “Raise the income tax personal allowance from £12,570 to £20,000. We think this would help low earners to get off benefits and allow pensioners a decent income.”

“We think it is abhorrent to tax pensioners on their state pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.”

After the petition clocked over 10,000 names, the Treasury had to come out and explain its stance. They said: “The Government is committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds. The Government has no plans to increase the Personal Allowance to £20,000. Increasing the Personal Allowance to £20,000 would come at a significant fiscal cost of many billions of pounds per annum.

“This would reduce tax receipts substantially, decreasing funds available for the UK’s hospitals, schools, and other essential public services that we all rely on. It would also undermine the work the Chancellor has done to restore fiscal responsibility and economic stability, which are critical to getting our economy growing and keeping taxes, inflation, and mortgages as low as possible.”

“The Government keeps all taxes under review as part of the policy making process. The Chancellor will announce any changes to the tax system at fiscal events in the usual way.”

Juggling sky-high living costs, UK taxpayers are finding themselves in a tighter bind with personal tax allowances frozen for the last four years. As it stands, the basic 20% tax rate kicks in at earnings more than £12,570, and those raking in over £50,270 get hit with the steeper 40% – and these thresholds haven’t budged an inch since 2021.

It’s all about ‘fiscal drag’, an issue where workers end up paying more as their wages rise but the tax-free allowance doesn’t. The petition can be viewed here.

Brits start contributing a 20% chunk to the taxman from £12,570, escalating to 40% from £50,270 income – both bands stubbornly stuck since 2021. Experts estimate this freeze is going to mean Treasury gains an extra £1.2 billion by the end of 2028.

The Office for Budget Responsibility says by 2025/26 those freezes might mean an extra 1.3 million will be forking out income tax, with another million getting pushed into steeper tax brackets.

At last year’s budget , Rachel Reeves said National Insurance and Income Tax thresholds will remain the same until April 2028. Victor Bulmer-Thomas said in an LSE blog post: “The distributional impact of this particular stealth tax may come back to bite the administration that imposed it. The reason is that the impact is much more severe on those on lower incomes than those on higher ones.”

Earlier this year, a petition made waves, calling for the Treasury to hoist up the personal tax-free allowance to a hefty £45,000. The Treasury replied: “The Government has no plans to increase the Personal Allowance to £45,000. Increasing the Personal Allowance to £45,000 would come at a significant fiscal cost of many tens of billions of pounds per annum. This would reduce tax receipts substantially, decreasing funds available for the UK’s hospitals, schools, and other essential public services that we all rely on. It would also undermine the work the Chancellor has done to restore fiscal responsibility and economic stability, which are critical to getting our economy growing and keeping taxes, inflation, and mortgages as low as possible.”

Meanwhile, Shaun Moore, the money guru from Quilter wealth management said: “The tax trap between £100,000 and £125,140 is one of the most punishing thresholds in the system. While it is of course a nice problem to have, this is a problem that can stifle ambition as people look for ways to reduce their workload or turn down higher-paid roles for fear of finding themselves in the trap.” View the petition here.