MPs will debate if key personal income tax thresholds to be raised to £20,000 after support for a petition soared. The Parliamentary website campaign has smashed through a key 100,000 signatures barrier meaning it will be debated in the House of Commons.
It is all about what is known as ‘fiscal drag’ and centres on the fact that the lowers personal income tax allowance has been frozen at £12,570 since 2021. This means millions of extra people who are the lowest paid workers in jobs have been dragged into the band – giving them even less money to live on.
The petition, which can be seen here, passed the 10,000 signup threshold last week meaning the Treasury has to reply setting out its policy and response – but it has not done so yet. But support has surged meaning it is now standing at 114,229 signatures meaning it will be considered for a parliamentary debate.
Petition founder Alan Frost targeted the Treasury and his petition text reads: “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.”
Currently, the threshold for paying the basic 20% tax begins at £12,570, and the 40% tax bracket starts at £50,270 earnings – both have been frozen since 2021. Experts project this will garner £1.2 billion for the Treasury by the end of the freeze period in 2028. The situation, known as ‘fiscal drag,’ sees a growing number of taxpayers being pulled into the tax-paying bracket or pushed into higher tax rates, and specialists argue that maintaining the lower threshold puts undue strain particularly on those earning the least.
Successive governments have maintained a standstill approach towards the tax allowance, effectively increasing the tax load on individuals. According to the Office for Budget Responsibility, by the fiscal year 2025/26, the impact of these ongoing freezes could lead to an additional 1.3 million people paying income tax, pushing a million more into higher tax brackets.
Rachel Reeves’ budget last year confirmed that National Insurance and Income Tax thresholds across various regions would remain unchanged until April 2028. Victor Bulmer-Thomas, in a blog post for the London School of Economics, previously highlighted how this disproportionately affects the poorest: “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.”
Shaun Moore from Quilter, the wealth management firm, has highlighted a significant issue in the tax system, stating: “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 pointed out that parents receiving a salary increase above £100,000 could end up worse off, as they would lose tax-free childcare benefits and part of the free care hours provided for three and four year olds. To view and sign up for the petition click here.