Questions are mounting over whether new Prime Minister Andy Burnham will address the frozen income tax threshold, a key personal finance issue that has drawn criticism for disproportionately affecting lower-income workers. The tax-free allowance has remained at £12,570 for five years, a freeze originally set by Chancellor Rachel Reeves and extended until 2031. Burnham himself acknowledged the issue's prominence during the Makerfield by-election campaign, telling The Times it was "the thing I heard the most on the doorsteps."
Impact of the Freeze
The extended freeze is projected to push 920,000 people into the higher-rate tax band and 4,000 into the 45% additional rate by 2030, while dragging 780,000 individuals into paying income tax for the first time, according to official estimates. This phenomenon, known as fiscal drag, means that even without a pay rise, more people are pulled into tax brackets as thresholds fail to keep pace with inflation and wage growth. Pensioners are particularly vulnerable, with forecasts suggesting the new state pension could exceed the £12,570 threshold by 2027 due to the triple lock, potentially leaving them facing unexpected tax bills.
Burnham's Stance
When questioned on tax rises, Burnham pushed back against being characterised as a "tax raiser." He told The Times: "So when people, they're just characterising me as a tax raiser, well again it's never that simplistic is it? The breathing space point is a really serious one. How do we just make people feel better?" He added: "So all of this will be looked at though at the Budget, and obviously it's difficult given the financial circumstances in which we find ourselves. But I wanted to recognise the point because it's challenging for people and it's people on the lowest incomes perhaps who've most been affected by that." Burnham emphasised that changing the threshold is "not without significant consequences" but said he is "looking at it." He also advocated for a shift towards "early investment," stating: "You have to rethink how we run things to get a different approach to public spending and running the economy which is much more focused on early investment, early intervention, setting people up for success and much less paying for failure."
Pressure from Campaigns
Burnham has appointed John Healey as Chancellor, replacing Rachel Reeves. Healey will face pressure from a campaign calling for the personal allowance to be raised to £18,000. A petition on the Parliament website demanding the threshold be unfrozen has gathered close to 40,000 signatures. It reads: "Raise the personal tax allowance to £18,000. Since 2021 personal tax allowance has been frozen at £12,570... We want to keep some more of our own money." Should the petition reach 100,000 signatures, it would be considered for a parliamentary debate. Earlier this year, a similar petition calling for a rise to £20,000 attracted 281,792 signatures before closing, making it one of the most-backed in the platform's history. The previous government estimated that raising the allowance to £18,000 would cost over £40 billion per year, with a subsequent Westminster debate placing the cost at £50 billion.
Possible Increase Amount
If Burnham were to raise the Personal Allowance, it is unlikely to be as high as £18,000 or £20,000. The Independent suggested that if he aligned the increase with September 2025's CPI inflation figure of 3.8%, the allowance would rise from £12,570 to around £13,050. For a worker with the average salary of £35,000, this would result in an extra £96 per year. Currently, a basic tax rate of 20% applies to income above £12,570, rising to 40% on earnings above £50,270—both thresholds unchanged since 2021.
