Government Breaks Silence on Petition to Raise Tax-Free Earnings Limit to £45,000

A petition calling for an increase in the tax-free earnings limit has gathered over 32,000 signatures and sparked an official response from the government.

The petition urges Chancellor Rachel Reeves to raise the personal tax threshold from £12,570 to £45,000, aiming to reduce the burden on low-income earners and combat what some are calling a “stealth tax.” Since 2021, the freeze on tax thresholds has meant that as people’s incomes rise with inflation, they are pushed into higher tax brackets without changes to tax rates, effectively increasing their tax bills.

Denver Johnson, who started the petition, criticized the current system, saying, “The tax-free earnings limit has stayed too low for too long, unfairly affecting the poorest. The system seems designed to widen the gap between the rich and the poor.”

With more than 10,000 signatures, the government was required to respond. The Treasury stated that while the freeze on tax thresholds remains until April 2028, they will allow thresholds to rise with inflation after that date. Raising the tax-free earnings limit to £45,000, however, was deemed too costly, as it would reduce government income by £270 billion annually, affecting funding for essential services like schools and hospitals.

The petition highlights the growing issue of “fiscal drag,” where frozen thresholds increase tax bills as wages rise. Experts, like Martin Lewis of MoneySavingExpert.com, explained how this impacts workers: “If someone earns £12,000 now and their income rises to £13,000 in a few years, they’ll start paying 20% tax on part of their earnings because the thresholds are frozen.”

The Office for Budget Responsibility estimates that the freeze will bring 1.3 million more people into the tax system by 2025/26, including one million higher-rate taxpayers.

Critics argue that this policy disproportionately affects low-income earners. Victor Bulmer-Thomas from the London School of Economics warned that this “stealth tax” hits poorer households the hardest, increasing their tax rates significantly compared to wealthier individuals.

If the petition reaches 100,000 signatures, it may be debated in Parliament, but the government has so far maintained its stance, citing fiscal responsibility.