Chancellor John Healey was told of the impact of the income tax threshold freeze (Image: Parliament TV)
Chancellor John Healey has given an update on frozen tax thresholds as support soars for calls to raise the lowest limit from £12,570 to £20,000. In his Budget Mr Healey failed to change the situation in spite of growing opposition.
A petition on the Parliament website is calling for the lowest tax threshold – presently £12,570 – to be increased to £20,000. Support has soared in the last week to more than 41,000 signatures – it will prompt an official Treasury response – and if gets to 100,000 will be considered for a Parliamentary debate – but there is just 24 hours left.
At the Treasury Committee this week an MP confronted the Chancellor saying the Office for Budget Responsibility had said the freeze was the ‘biggest impact’ on disposable income. Liberal Democrat MP Bobby Dean said: “The OBR noted that the freeze on tax thresholds is having the biggest impact on people’s disposable income and therefore on their living standards. You said that you did not want to raise taxes, but over the course of this Parliament that threshold freeze is the equivalent of putting about 2% onto income tax.
“If you were to take the decision to raise income tax by 2%, you would be expected to explain that at the Dispatch Box, but freezing the thresholds was not mentioned at all in your Budget speech. Do you think it is fair on the public for them to see an effective tax rise without it being explained or justified?”
Mr Healey replied: “The decision on thresholds had already been taken; it was not a fresh decision for me for this Budget. I wanted to reject any arguments for an across-the-board increase in taxes, which I did. “The second thing I wanted to do was to make sure that, as a governing party, we could respect and follow the commitments that people voted for us on at the election: that we would not raise the levels of income tax, national insurance or VAT.”
Mr Dean replied: “Do you accept the OBR’s analysis that the freeze on thresholds is one of the primary drags on people’s living standards?“ The Chancellor said: “ I accept that the freeze is there in the numbers: the contribution it makes to the finances, and, in the analysis, the impact that it has on people’s incomes. I am very conscious of that. It is also there in the numbers just how expensive it would be to change it.”
The petition, launched by Wade Reid, declares: “The personal allowance has been frozen while living costs have risen, meaning workers pay more tax in real terms. Increasing it to £20,000 would put more money into millions of workers’ pockets, helping with rising bills and supporting low and middle earners.
“The personal allowance has been frozen since 2021 while living costs have risen sharply, meaning workers are paying more tax in real terms. As wages increase slightly to keep up with inflation, more people are pulled into paying tax or higher rates. Increasing the threshold to £20,000 would put more money into millions of workers’ pockets, ease financial pressure, and support low and middle earners during a cost of living crisis.”
This freeze has continued to drag more earners into paying income tax or entering higher bands as salaries increase. According to the most recent HMRC figures, there are 31.4 million basic-rate taxpayers across the country. This represents a 15% rise in the number of people paying income tax at 20% since tax bands were frozen at 2021 levels.
Some 7.7 million people are anticipated to pay the higher rate this year — an increase of one million compared to two years ago. A further 1.3 million individuals are projected to pay the 45% additional rate — considerably more than the 263,000 people who paid it in 2010-11 when it was first introduced.
Had the threshold kept pace with inflation, it would stand at approximately £16,072 next year and £17,380 by 2029-30, according to research by AJ Bell. Should Mr Burnham choose to raise the personal allowance to £16,000, this would come at a cost of roughly £35bn, the investment platform noted.
John Healey’s New £12,570 Tax Threshold Update as 24-Hour Deadline Hits
The debate over Britain’s frozen income tax thresholds has intensified as Chancellor John Healey faces growing pressure to reconsider the Personal Allowance, currently set at £12,570. A parliamentary petition demanding an increase to £20,000 has attracted more than 30,000 signatures, putting the issue firmly on the political agenda as its closing deadline of 14 November 2026 approaches. Campaigners argue that millions of British workers are paying more tax in real terms because the Government has kept income tax thresholds unchanged while wages and living costs have continued to rise. The campaign has therefore called on the Labour Government, led by Prime Minister Andy Burnham, to take urgent action to ease the financial pressure on ordinary households.
The Personal Allowance is the amount of money an individual can earn each tax year before becoming liable for income tax. For the 2026/27 tax year, the standard allowance remains £12,570. This means that someone earning £20,000 annually generally pays income tax on £7,430 of their earnings, assuming they are entitled to the full allowance and have no other relevant adjustments. The basic income tax rate in England, Wales and Northern Ireland is 20 per cent, while higher rates apply to individuals earning more. Scotland operates a separate income tax system with different thresholds and rates.
The main concern is that the Personal Allowance has remained frozen at £12,570 since April 2021 and is currently scheduled to stay at this level until April 2031. During this period, the cost of food, housing, transport, energy and other essential goods has increased considerably. Although wages have risen in many sectors, the tax-free threshold has not moved accordingly. Consequently, workers whose salaries increase may find themselves paying income tax on a larger proportion of their earnings, even when their real purchasing power has not improved significantly.
Economists describe this situation as fiscal drag. It occurs when tax thresholds remain unchanged while wages and prices rise, gradually bringing more people into the income tax system or pushing existing taxpayers into higher tax bands. Unlike an official increase in income tax rates, fiscal drag allows the Government to collect additional revenue without changing the headline percentages. Critics argue that this amounts to a hidden increase in taxation, particularly affecting workers on modest and middle incomes.
The petition, launched by Wade Reid, calls for the annual tax-free allowance to increase from £12,570 to £20,000. Supporters believe that such a change would provide meaningful financial assistance to millions of people who are struggling with household expenses. According to the campaign, increasing the threshold would allow workers to retain more of their earnings and reduce the financial pressure created by rising living costs. The petition has already passed the 10,000-signature requirement, meaning the Government must provide an official response. If it reaches 100,000 signatures, it will be considered for a parliamentary debate, although this does not guarantee that a debate will take place.
For ordinary workers, the proposed increase could make a substantial difference. Someone earning £20,000 annually would currently pay approximately £1,486 in basic-rate income tax under a simplified calculation. If the Personal Allowance increased to £20,000, that individual could potentially pay no income tax on their salary. A worker earning £30,000 could save up to £1,486 annually, equivalent to approximately £124 per month. These figures assume that the individual receives the full allowance and that other tax arrangements remain unchanged. However, the actual benefits would depend on income, location and individual tax circumstances.
The campaign has also attracted attention because of the growing number of people paying higher rates of income tax. Figures cited in recent reports indicate that approximately 31.4 million people are basic-rate taxpayers, while around 7.7 million are expected to pay the higher 40 per cent rate during the 2026/27 tax year. A further 1.3 million people are projected to pay the additional 45 per cent rate. These figures illustrate how the tax system has expanded as earnings have increased while the thresholds have remained frozen.
However, increasing the Personal Allowance to £20,000 would create a significant financial challenge for the Treasury. Research by investment platform AJ Bell suggests that even increasing the allowance to £16,000 could cost the Government approximately £35 billion annually. Raising the allowance by just £100 could cost around £1 billion a year. An increase to £20,000 would therefore require substantial additional funding or alternative tax and spending measures. The Chancellor must consider whether the potential benefits to households would justify the reduction in government revenue.
Public services are another important part of the debate. Income tax helps finance the National Health Service, schools, social care, transport infrastructure, policing and other essential services. Reducing tax revenue could create additional pressure on government finances unless economic growth or other sources of revenue compensate for the difference. Supporters of the petition argue that allowing people to retain more of their income could stimulate consumer spending and support businesses. However, critics believe that a large tax reduction could make it more difficult to maintain adequate public services.
John Healey has previously defended the Government’s decision not to change the income tax thresholds in the latest Budget. Speaking during an interview with ITV, he explained that the Government had considered the issue but decided to maintain its existing plans. He acknowledged that decisions about tax thresholds form part of the wider management of public finances and indicated that the Government wanted to focus on longer-term reforms rather than making immediate changes. He also pointed to measures intended to ease pressure on households and businesses, particularly in relation to energy costs.
The Chancellor’s position has attracted criticism from campaigners who believe that workers need immediate financial relief rather than promises of future reform. They argue that keeping the allowance frozen until 2031 could gradually increase the tax burden on millions of people. For lower-paid employees, even relatively small increases in taxation can make a difference when household budgets are already stretched by rent, mortgage payments, food prices and utility bills.
Pensioners are also affected by frozen tax thresholds. As the State Pension increases each year, some retirees may find that their total taxable income approaches or exceeds the Personal Allowance, particularly if they also receive workplace or private pensions. The Government has announced a separate Pension Tax Allowance from April 2027 to protect certain pensioners whose only income is the full new State Pension, but this does not represent a general increase in the Personal Allowance for all taxpayers.
As the petition deadline approaches, the central question is whether the Government will reconsider its position. Passing 10,000 signatures obliges ministers to respond, but it does not require them to accept the proposed increase. Reaching 100,000 signatures would create an opportunity for parliamentary consideration, allowing MPs to examine the financial consequences and political arguments surrounding the proposal.
Ultimately, the campaign to increase the Personal Allowance from £12,570 to £20,000 highlights a wider debate about fairness, taxation and the cost of living in Britain. Workers want to retain more of their earnings, while the Government must ensure that public services remain adequately funded and the national finances are sustainable. John Healey faces the difficult task of balancing these competing priorities. Although the petition has generated significant public interest, there is currently no approved increase to the tax-free allowance. For now, the threshold remains £12,570, and the outcome of the campaign will depend on the Government’s formal response and any future decisions made by the Treasury.