Market News

BY Ben Haslam

The government has responded to calls for the income tax personal allowance to be raised to £20,000. 226,000 people have signed a petition calling on Chancellor Rachel Reeves to hike the income tax threshold for state pensions in the upcoming Spring Statement.

The petition, spearheaded by Dennis Reed on change.org, voices concerns over the stagnant personal allowance of £12,570. The petition's popularity has surged, as there are strong demands for the personal tax allowance's lowest band to be raised from £12,570 to £20,000.

Dennis Reed who created the Change.org petition expressed his worries about pensioners' dwindling incomes on the change.org petition, arguing that not raising the tax threshold would deal a "double whammy" to seniors, especially after the Government's move to means-test the Winter Fuel Allowance payment.

Mr Reed said: "Because of the frozen tax personal allowances, the top of the new state pension may breach the current personal allowance of £12570 in 2026.

"This would lead to the ludicrous situation of the state pension safety net, which has already been paid for through national insurance and tax, being taxed again. Many more pensioners across the country would be plunged into poverty as a result of political choice."

In response to the petition, HM Treasury wrote on the parliamentary petition: "The Government is committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds.

"The Government has no plans to increase the Personal Allowance to £20,000. Increasing the Personal Allowance to £20,000 would come at a significant fiscal cost of many billions of pounds per annum.

"This would reduce tax receipts substantially, decreasing funds available for the UK’s hospitals, schools, and other essential public services that we all rely on.

"It would also undermine the work the Chancellor has done to restore fiscal responsibility and economic stability, which are critical to getting our economy growing and keeping taxes, inflation, and mortgages as low as possible.

"The Government keeps all taxes under review as part of the policy-making process. The Chancellor will announce any changes to the tax system at fiscal events in the usual way."

Since the freeze in 2021, the threshold has dragged millions of low-income workers into paying income tax due to 'fiscal drag'. At present, anyone earning over £12,570 is subject to a 20% tax on their income.

Alan Frost, who initiated a separate Parliament website petition, is urging the government to: "Raise the income tax personal allowance from £12,570 to £20,000. We think this would help low earners to get off benefits and allow pensioners a decent income."