MPs intervene in call to raise personal tax allowance to £45,000 after Treasury response

Chancellor Rachel Reeves is facing growing pressure to address what many are calling an “unfair” tax trap that has disproportionately affected the UK’s lowest earners. A petition on the Parliament website, which has garnered over 43,000 signatures, is urging the government to raise the personal tax allowance from its current level of £12,570 to £45,000.

The threshold, which has been frozen since 2021, has drawn millions of low-income workers into paying income tax, a phenomenon known as “fiscal drag.” Critics argue that this freeze has placed an undue burden on the poorest in society, exacerbating the gap between the rich and the poor.

The petition, launched by Denver Johnson, states: “The Personal Allowance is the amount of income a person can get before they pay tax. It stands at £12,570 in 2024. We would like the standard Personal Allowance raised to what we think is a more realistic figure of £45,000.

We think that the Personal Allowance, as termed by the government, has been kept unreasonably low for far too long, at the expense of the poorest, most needy people in our society. We feel that the poorer majority should pay substantially less than the wealthy. We think that the tax system seems designed to make the divide between rich and poor increase exponentially.”

Currently, the basic 20% tax rate applies to earnings above £12,570, while the 40% tax bracket starts at £50,270. Both thresholds have remained unchanged since 2021, and experts estimate that this freeze will generate £1.2 billion for the Treasury by 2028. However, this has also meant that more people are being pushed into higher tax brackets or are being required to pay income tax for the first time, placing significant financial strain on those with the lowest incomes.

The Treasury initially responded to the petition, stating that the government had decided not to extend the freeze on personal tax thresholds beyond 2028, meaning that thresholds will rise with inflation from that point onward. However, the Petitions Committee, a group of MPs responsible for overseeing the petitions system, found this response inadequate. They argued that it did not directly address the concerns raised in the petition and have called on the government to provide a revised response.

The Treasury’s initial response also highlighted the significant fiscal cost of raising the Personal Allowance to £45,000, estimating it would cost more than £270 billion per year on average over the next three years. They argued that such a move would reduce tax receipts substantially, limiting funds available for essential public services like hospitals and schools. The Treasury emphasized the importance of maintaining fiscal responsibility and economic stability, which they believe are critical for keeping taxes, inflation, and mortgages low.

Despite these arguments, the petition continues to gain traction, with supporters calling for a more equitable tax system that reduces the burden on low-income earners. If the petition reaches 100,000 signatures, it will be considered for debate in Parliament, potentially putting further pressure on the government to address the issue.

For now, the Treasury has stated that all taxes remain under review as part of the policy-making process, with any changes to be announced by the Chancellor during future fiscal events. However, the growing public outcry suggests that the issue of fiscal drag and the personal tax allowance will remain a contentious topic in the coming months.