Government rejects petition to increase personal allowance to £20,000

Many families are currently struggling to make ends meet due to the current cost of living crisis and they have genuine fears about how they are going to pay their energy bills and their mortgages.

Due to this, over 10,000 signatures have been obtained on an online petition to increase the personal tax allowance by 59% from £12,570 up to £20,000. Predictably the government has not been receptive to this and on 6 January it gave the following response:

“The Personal Allowance will remain at £12,570, to support the public finances. It has nearly doubled since 2010. The Government’s Cost of Living support package is targeted at those who need it most.”

The standard personal allowance is the amount of taxable income an individual can receive in a tax year before needing to pay income tax. This allowance has been set at £12,570 since April 2021. Back in the March 2021 budget the then chancellor, Rishi Sunak, announced that the personal allowance would be frozen at £12,570 for five years through to April 2026. This was then extended for a further two years in the 2022 Autumn Statement by Jeremy Hunt resulting in the personal allowance being frozen at its current level until April 2028.

As inflation has driven up salaries, this has pushed more workers’ income over the current personal allowance and into paying income tax. The freeze of the personal allowance has effectively resulted in low earners paying more tax without necessarily understanding why they are.

In July 2022 it was estimated that even a 10% increase in the personal allowance from April 2023 would cost the government approximately £8.4 billion in reduced tax receipts in the tax year 2023-24. Due to the current economic climate, it is easy to see why the government is reluctant to increase the allowance.

However, perhaps more creative thought could be applied by the government and an increase in the personal allowance, or perhaps the introduction of a specific allowance for certain workers, could be used as a bargaining chip with public sector unions. The government is meeting with them this week and there are rumours of a proposed one-off payment to the workers to ease the cost-of-living pressures. A one-off payment may have unintended adverse tax consequences for the workers such as pushing them into higher rates of tax, repayment of child benefit payments, loss of the marriage allowance to name a few. All these consequences if applicable could restrict the amount of pay workers would actually receive in their pocket from the one-off payment.

Instead of solely relying on a one-off payment, if the government considered introducing a new allowance which effectively increased the personal allowance, this could directly impact the workers it is negotiating with and result in them taking home more of their hard-earned money. A specific allowance would reduce the cost to the Treasury and ensure it is not providing any benefit to high earners who might also benefit from a general increase to the personal allowance.

Such an approach could present a real opportunity for the chancellor to direct support to certain families with the cost of living, negotiate with the public sector and help bring an end to the difficulties faced by the wider public with disruption caused by strike action.