Personal tax allowance raise from £12,570 to £20,000 update as backing soars

A campaign to try to force Rachel Reeves to increase the lowest personal tax allowance threshold has seen a surge of support in the wake of a parliament debate. In a huge wave of frustration people have been signing up to a massive petition on the parliament website on the issue.

It finally closed to new signups last week on 281,792 signatures - making it the second biggest petiton on the site - one calling for a general election has gained over 3 million signatures. Currently people pay tax after they earn £12,570 - and this has been frozen since 2021 meaning millions more of the lowest paid workers in the UK have fallen into paying tax.

The petition urged Chancellor Rachel Reeves to up the threshold to £20,000, saying it is not fair that the lowest paid people should be targeted this way in what is known as 'fiscal drag'. The petition called on the Treasury to: "Raise the income tax personal allowance from £12570 to £20000. 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."

The fact that it garnered so many new signups was said by campaigners to show the strength of feeling on the subject. Currently, the basic tax rate of 20% kicks in at earnings above £12,570, and higher earners start paying the 40% rate on income over £50,270 - both thresholds have been static since 2021. The issue revolves around the concept of 'fiscal drag', which is linked to the fact that the personal income tax allowance has been frozen at £12,570 since 2021.

The debate happened in May and the petition finally closed last week on the huge total. During the debate at Westminster Hall in the House of Commons Daisy Cooper, Lib Dem, said the huge support showed how the country felt: "The number of people who have signed it speaks to the strength of public feeling about this issue, which is a serious policy challenge for all political parties. Indeed, I think the petition does more than showing the strength of feeling that exists. I regard it as a cry for help, because right around the country there are struggling families gripped by a cost of living crisis

"We have a toxic combination that means that people are seeing their taxes go up but not seeing services improve. It is leading to that cry for help."

James Murray, Exchequer Secretary to the Treasury told the debate that the estimated cost of raising the threshold to £20,000 was very high. He explained: "I recognise the views of everyone who has put their name to the petition, and let me be clear that, as a Government, we want taxes on working people and on pensioners, who have worked hard all their lives, to be as low as possible.

"We were elected to put more money in people's pockets and, crucially, we were elected to do so in a fiscally responsible way. That is a critical point to understand. Toggle showing location ofColumn 10WHWe want to keep taxes on working people and pensioners as low as possible, but if we were to follow the calls of some Opposition parties and abandon fiscal responsibility, it would lead to economic chaos and the collapse of public services, and that would harm working people and pensioners the most.

"Raising the personal allowance to £20,000 would cost more than £50 billion. That is more than the £45 billion of unfunded tax cuts announced by Liz Truss in her disastrous mini-Budget. Conservative and Reform MPs may have cheered Liz Truss on, but like the British people, we in the Labour party know the damage that that caused, and we will never let it happen again. To put it another way, if £50 billion was taken out of public services, that would be equal to wiping out almost the entire UK defence budget or slashing the NHS by a quarter. The British people will not be the winners if public services collapse or chaos returns to the economy."

On the issue of the personal tax allowance, he said: "Turning to the personal allowance, it is worth beginning by recognising that the UK has one of the more generous personal tax allowances in the OECD, and the most generous in the G7. As we have heard in today's debate, it was the previous Government who made the decision to freeze the personal allowance at its current level of £12,570 until April 2028. In the Budget last autumn, this Government decided not to extend that freeze and we kept the basic, higher and additional rates of income tax, employee national insurance contributions and VAT unchanged, meaning that people will keep more of their income."

Other popular tax-related e-petitions in this parliament include one opposing changes to inheritance tax relief for working farms (154,000 signatures), one opposing VAT being placed on school fees (115,000 signatures), one proposing the personal allowance be raised to £45,000 (47,000 signatures) and one calling for social care providers to be exempted from the recent employer national insurance increase (40,000 signatures).

Eight MPs took part in the debate - five making speeches and three only interventions. This included frontbench speakers for the three main parties.

The debate was opened by Lewis Atkinson (Lab), a member of the House of Commons Petitions Committee. He began by providing some context to the discussion, saying that from 2019-20 to 2023-24, average disposable incomes after tax fell, leaving people poorer at the end of the last parliament than at the start. He noted the decisions of Conservative chancellors to freeze the personal allowance until 2028 and the announcement by the current chancellor that the freeze would not be extended beyond that.

Conservative MPs Sir Ashley Fox and Wendy Morton intervened to suggest that freezing the basic allowance at £12,570 hits pensioners hardest, with the latter saying "a considerable number of pensioners feel aggrieved and hard done by at the moment... because of a number of policy decisions".

Tom Morrison (Lib Dem) said that raising the personal allowance could ease pressure on struggling families, urging the government to "find ways to lower the tax burden". He said that the Conservatives raised taxes by freezing thresholds, pushing more families and pensioners into hardship. Morrison cited Resolve Poverty, which has estimated that nearly 20% of children live in poverty. He considered the "unfair" child benefit cap to be one of the biggest drivers of rising child poverty and called for it to be scrapped.

The debatecan be viewed here.