Treasury will be forced to respond after support soared
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.
Now the call – which has only until Saturday to run – has smashed through 10,000 signups meaning officials must give an official answer. Prime Minister Andy Burnham has faced pressure and speculation regarding potential changes to UK income tax thresholds.
Frozen at £12,570 since April 2021, the policy has been extended until 2031 – and in last month’s Budget Mr Healey did not make any change to this. This freeze has continued to pull more earners into paying income tax or higher brackets as wages rise.
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 petition, created by Wade Reid, states: “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.”
Mr Healey made no adjustments to the allowances in the Budget – though he indicated to ITV audiences that potential ‘bigger changes’ could be forthcoming. During his ITV programme, personal finance expert Martin Lewis shared a question from viewer Michael: “Will the Chancellor be honest and admit he’s raising taxes on working people by stealth by continuing the freeze on tax thresholds? He is being totally disingenuous.”
Martin enquired: “When will you raise tax thresholds?” Mr Healey responded: “Well, our promise was not to raise rates across the board and this was a budget unlike in some previous years where I rejected the idea of broad-based tax rises because it isn’t just businesses, it’s individuals and households that are under pressure.
“So where I could avoid that, I decided I should do that. And it was a budget, if you step back, that was designed to take action where we could just to help take a bit of pressure off people, give people a bit of breathing space, which we’ve done, especially on energy. And it was a budget also designed to try and do that a bit for business.”
“So where I could avoid that, I decided I should do that. If you step back, that was designed to take action where we could just to help take a bit of pressure off people, give people a bit of breathing space, which we’ve done, especially on energy. And it was a budget also designed to try and do that a bit for business.”
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However, Martin challenged the claims regarding working people’s taxes – arguing that fiscal drag was achieving precisely that: “Forgive me, this specific question. You said in the speech yesterday, we are not raising taxes on working people. Well, by all definitions, the fiscal drag, the freezing of the tax thresholds is the biggest tax that has ever been raised in recent history. You accept you are while you’re not raising tax rates, you are increasing taxes.”
Mr Healey said: “In truth, it is part of any government’s revenue and judgments about thresholds as well as rates are part of the judgments that have to be taken, and the plans for the thresholds have been set for the next few years. And I took the decision in this budget that I wouldn’t touch those and I would do what I can where I could to help people. And then make some bigger changes for the long term. Because fundamentally we’ve got parts of our system that needs fixing.”
Fiscal drag happens when the government maintains frozen tax thresholds while inflation and nominal earnings increase. Rather than explicitly increasing tax rates, the Treasury secures additional revenue because a greater proportion of workers’ pay exceeds the frozen limits.
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.
A total of 7.7 million people are expected to pay the higher rate this year – a rise of a million compared to two years previously. An additional 1.3 million individuals are forecast to pay the 45% additional rate – significantly more than the 263,000 people paying it in 2010-11 when it was first introduced.
Had the threshold risen in keeping with inflation, it would sit at roughly £16,072 next year and £17,380 by 2029-30, according to research by AJ Bell. Were Mr Burnham to opt for raising the personal allowance to £16,000, this would carry a price tag of approximately £35bn, the investment platform noted.
Lifting the allowance by just £100 would set the Treasury back around £1bn each year. View and back the petition here.