Chancellor John Healey is being urged to unfreeze income tax boundaries (Image: Getty)

A campaign calling on Chancellor John Healey to take action over frozen tax thresholds has hit a key threshold – meaning the Treasury must respond. In last month’s budget, Mr Healey failed to act despite widespread calls for change.

A petition on the Parliament website is demanding that the lowest level of tax – currently £12,570 – be raised to £20,000. Income tax thresholds have remained frozen since 2021 and, under existing plans, will continue to do so until 2031.

As a result, some of the lowest-paid workers are being forced to hand over ever-increasing sums in tax, in what is commonly referred to as ‘fiscal drag’. The basic Personal Allowance in the UK stands at £12,570 for the 2026/27 tax year – the amount one can earn annually before becoming liable for 20 per cent income tax.

The higher 40% rate applies from £50,271, while the additional 45% rate kicks in at £125,140. Independent figures indicate that a basic-rate earner (£20k-£50k) pays approximately £700 to £800 more in tax each year solely as a consequence of the freeze.

“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.”

According to the latest HMRC figures, there are 31.4 million basic-rate taxpayers nationwide. That marks a 15% increase in the number of individuals paying income tax at 20% since tax bands were frozen at 2021 levels.

Lifting the allowance by just £100 would set the Treasury back around £1bn each year. View and back the petition here.

Raise Personal Income Tax Allowance from £12,570 to £20,000 – Monday Update as Key Threshold Met

Millions of British taxpayers are being given renewed hope after a major campaign calling for an increase in the personal income tax allowance from £12,570 to £20,000 reached an important parliamentary milestone. The campaign has attracted growing public support, putting additional pressure on Chancellor Rachel Reeves and the Labour government to reconsider the country’s taxation system. With household budgets under increasing pressure from rising food prices, energy bills, housing costs and everyday expenses, campaigners argue that ordinary workers deserve to keep more of the money they earn. The latest development has brought the issue back into the political spotlight, with supporters urging ministers to listen to taxpayers before the opportunity for meaningful change is lost.

The campaign centres on the personal allowance, which determines how much an individual can earn before becoming liable for income tax. Under the current system, most people can earn £12,570 annually without paying income tax. Any taxable income above that threshold is generally subject to the relevant income tax rates. Campaigners believe that this allowance no longer reflects the financial realities facing British households and should be increased to £20,000.

The proposed change would represent a substantial increase of £7,430 in the tax-free threshold. Supporters argue that it would provide immediate financial relief to millions of workers, pensioners and lower-income households. They believe the government should prioritise helping people who work hard, pay their taxes and struggle to cover essential expenses rather than continuing to increase the tax burden through frozen thresholds.

One of the main reasons behind the campaign is the prolonged freeze on personal income tax allowances. The standard personal allowance has remained at £12,570 since April 2021, while the government has announced plans to maintain the freeze until April 2031. This means that even when wages increase, workers may find themselves paying more income tax without necessarily becoming better off in real terms.

Economists refer to this situation as fiscal drag. It occurs when income tax thresholds remain unchanged while wages and prices increase. As salaries rise over time, more of an individual’s income becomes taxable, and some workers can move into higher tax brackets. Although the government does not formally increase income tax rates, the overall amount collected can rise significantly.

For many households, this creates a frustrating financial situation. Workers may receive a pay increase and initially believe that their financial position has improved. However, once income tax, National Insurance and higher living costs are taken into account, the additional money available at the end of the month can be considerably smaller than expected.

The proposed £20,000 allowance is intended to address this problem by allowing people to retain a greater proportion of their earnings. For example, someone earning £20,000 annually would currently have £7,430 of income above the standard personal allowance that is generally subject to basic-rate income tax. If the allowance increased to £20,000, that person would no longer pay income tax on that salary, assuming no other taxable income or special circumstances.

For someone earning £30,000, the proposed increase could provide approximately £1,486 in annual income tax savings, assuming the basic 20 per cent rate applies throughout the relevant income range. This represents more than £120 a month in additional take-home income. For families facing rising grocery bills, transport costs and energy expenses, such a difference could provide valuable financial breathing space.

The campaign has also attracted attention because of the growing number of people who are paying higher rates of income tax. As salaries increase while thresholds remain frozen, more taxpayers are being drawn into the 40 per cent higher-rate band. This has raised concerns that middle-income households are gradually experiencing a greater tax burden despite not necessarily enjoying substantial improvements in their living standards.

Financial experts have repeatedly warned that frozen tax thresholds can have significant consequences over several years. The longer the freeze continues, the more people may be affected. Younger workers entering employment, experienced employees receiving pay rises and pensioners whose taxable income increases can all experience the effects of fiscal drag.

The latest petition milestone has therefore become an important moment for campaigners. Under the UK Parliament’s petition system, reaching 10,000 signatures requires the government to provide an official response. Reaching 100,000 signatures makes a petition eligible for consideration for a parliamentary debate, although a debate is not automatically guaranteed.

For supporters, reaching the required threshold is an opportunity to ensure that the issue receives greater political attention. They want MPs to discuss whether the existing personal allowance remains appropriate and whether the government should introduce a new threshold that reflects modern living costs.

However, the proposal also raises important questions about public finances. Increasing the personal allowance to £20,000 would significantly reduce the amount of income subject to taxation. The Treasury could lose tens of billions of pounds in annual revenue, depending on the precise arrangements and the number of taxpayers affected.

The government would therefore need to explain how such a substantial tax reduction could be financed. Britain has major financial responsibilities, including funding the NHS, schools, social care, public transport, defence and local government services. Reducing income tax revenue without identifying alternative funding could place additional pressure on public services or increase government borrowing.

Supporters of the campaign argue that the economic benefits should also be considered. Giving households more disposable income could encourage consumer spending, support small businesses and strengthen local economies. Workers with additional money may spend more in supermarkets, restaurants, shops and other businesses, potentially generating additional economic activity.

There is also an argument that a higher personal allowance could improve incentives to work. People on lower incomes would retain more of their earnings, potentially making employment more financially rewarding. This could be particularly important for individuals deciding whether to increase their working hours or return to employment.

Nevertheless, economists may question whether a universal increase is the most effective way to help households in greatest need. People with higher incomes would also benefit from the larger allowance, while some individuals on very low incomes already pay little or no income tax. Targeted tax credits and other forms of financial support could potentially provide more assistance to those experiencing the greatest hardship.

Another important issue is the interaction between income tax and National Insurance. Even if the personal allowance increased to £20,000, workers could still be required to pay National Insurance contributions depending on their earnings. This means that the overall increase in take-home pay would depend on more than the income tax threshold alone.

The Chancellor must therefore consider the wider tax system rather than treating the personal allowance as an isolated issue. Campaigners believe that a comprehensive review is necessary to ensure that working people are not being unfairly penalised by a combination of frozen thresholds, taxation and rising living costs.

The political consequences could also be significant for Labour. The party promised to improve living standards and reward working people, but critics argue that maintaining frozen income tax thresholds contradicts those ambitions. Opposition parties may use the growing petition to challenge the government’s economic policies and question whether ministers are doing enough to reduce the pressure on ordinary households.

For millions of taxpayers, the issue is straightforward: they want to keep more of the money they earn. They believe that people who work full-time should have a reasonable amount of income protected from taxation, particularly when essential costs continue to rise.

Ultimately, the growing campaign demonstrates the strength of public concern about Britain’s taxation system. The proposed increase from £12,570 to £20,000 would be a major policy change, potentially transforming the financial position of many households. However, the government must carefully examine the cost, distribution of benefits and implications for public services before making any commitment.

In conclusion, the latest petition milestone represents an important development in the campaign for a £20,000 personal income tax allowance. Supporters believe that the current £12,570 threshold is outdated and that millions of taxpayers deserve meaningful relief after years of frozen allowances and rising living costs. The proposal could provide significant savings, particularly for workers on modest and middle incomes, but it would also create substantial challenges for the Treasury. Chancellor Rachel Reeves must now explain whether the government is prepared to reconsider its approach and offer taxpayers a fairer deal. The central question is whether Britain should continue relying on frozen thresholds to increase tax revenue or introduce a system that allows working people to retain more of their earnings. For millions of households, this is not simply a political argument. It is a question of financial security, fairness and the ability to afford everyday life.