A major development has emerged in the ambitious campaign pushing for an increase in the income tax thresholds to £20,000. A petition on the Parliamentary website is advocating for a significant hike in the personal income tax allowance from the current £12,570 to £20,000.
This figure has remained static since 2021, and with even the lowest earners receiving pay rises since then, it means that millions more are now contributing to the tax pot. Today, the petition’s support has surged beyond 150,000 signatures, ramping up the pressure on Chancellor Rachel Reeves to act.
Having breached the 100,000-signature threshold, the issue is now guaranteed a debate in the House of Commons, though a date for this has yet to be scheduled. The petition’s organisers are still awaiting a formal response from the Treasury, which was due when the petition hit 10,000 signatures. Now, with over 150,000 supporters, the momentum is building, and the organisers hope this will focus the government’s attention on the matter.
The petition, initiated by Alan Frost, calls on 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.”
It further argues: “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.”
The matter at hand revolves around the concept of ‘fiscal drag’, focusing on the fact that the lower personal income tax allowance has remained stagnant at £12,570 since 2021. The petition can be viewed here.
At present, the threshold for paying the basic 20% tax starts at £12,570, and the 40% tax bracket kicks in at £50,270 earnings – both have been frozen since 2021. Experts estimate this will net the Treasury a cool £1.2 billion by the end of the freeze period in 2028.
This scenario, referred to as ‘fiscal drag,’ results in an increasing number of taxpayers being drawn into the tax-paying bracket or nudged into higher tax rates. Specialists argue that keeping the lower threshold puts disproportionate pressure especially on those with the lowest incomes.
Consecutive governments have adopted a status quo approach towards the tax allowance, effectively ramping up the tax burden on individuals. As per the Office for Budget Responsibility, by the fiscal year 2025/26, the repercussions of these continuous freezes could result in an additional 1.3 million people paying income tax, thrusting a million more into higher tax brackets.
Last year, Rachel Reeves announced in her budget that National Insurance and Income Tax thresholds across different regions would stay static until April 2028. Victor Bulmer-Thomas from the London School of Economics voiced concerns on his blog about unfair burdens placed on the less affluent due to this policy: “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.”
A related campaign urging a rise in the threshold to £45,000 recently prompted a response from the Treasury earlier this year. Addressing that topic, they responded: “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.”
Shaun Moore from Quilter, the wealth management company, has shed light on a pressing concern within the tax framework, remarking: “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.”
He also noted the potential downside for parents who receive a pay rise above £100,000, as they could find themselves financially disadvantaged by losing access to tax-free childcare benefits and a reduction in free care hours for three and four year olds. To view and sign up for the petition click here.