A plea to the Chancellor Rachel Reevestax thresholds for workers and state pensioners has gathered a huge 249,055 signatories meaning a parliamentary showdown on the issue will take place on Tuesday.
The crusade, which has seen its petition surpass the crucial 100,000 signature mark, is now bound for a House of Commons debate and will be viewable on Parliament TV on May 12.
Petition creator Alan Frost urged 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.”
Frost said: “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.”
As the petition quickly soared through 10,000 signatures, the Treasury was forced to issue a response which 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.”
As living costs continue to climb, UK taxpayers are feeling the pinch with personal tax allowances frozen in time. At present, individuals start paying the basic tax rate of 20% on earnings over £12,570, while a 40% tax rate applies to higher earners on income exceeding £50,270 – thresholds that have been fixed since 2021 due to ‘fiscal drag’. You can view the petition here.
In the current tax system, a person begins to pay the basic 20% tax on earnings above £12,570, while entry into the 40% tax bracket starts at £50,270 – neither threshold has shifted since 2021. Analysts estimate that by the conclusion of the freeze period in 2028, the Treasury will garner an additional £1.2 billion owing to these static thresholds.
The phenomenon of ‘fiscal drag’ sees more taxpayers being inadvertently roped into paying taxes or moving into higher tax bands. Experts suggest that maintaining the lower threshold unduly burdens those with the smallest earnings.
Successive governments have maintained a static position on the tax allowance, stealthily increasing the tax load on individuals. The Office for Budget Responsibility anticipates that by fiscal year 2025/26, due to ongoing freezes, there could be an extra 1.3 million taxpayers, with a million additional people finding themselves in higher tax categories.
In last year’s budget review, Rachel Reeves declared that National Insurance and Income Tax thresholds will remain unchanged until April 2028 throughout various regions. Renowned economist Victor Bulmer-Thomas elaborated on the repercussions in an LSE blog: “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.”
An earlier petition demanding an increase in the tax-free Personal Allowance to £45,000 was met with staunch resistance from the Treasury. They asserted: “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.”
Finance expert Shaun Moore of Quilter warned against the severe tax implications within the £100,000 to £125,140 bracket, 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.”
Moore further cautioned that parents earning over £100,000 could actually be financially disadvantaged due to fewer tax-free childcare benefits and potentially losing some free childcare hours for three and four year olds.People can view the ongoing petition here.