Petition to raise personal tax allowance reaches 200k signatures

A petition calling for the government to increase the personal tax allowance threshold is once again gaining traction after it was posted on the parliament website last month.

In total, the campaign has now reached over 200,000 signatures and is rising daily. Alan Frost, who started the petition, has requested that the government raise the income tax personal allowance from £12,570 to £20,000, in order to help low earners and pensioners navigate the ongoing cost of living crisis.

In response to the petition, the Government said it is “committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility.”

What is the personal allowance?

The personal allowance is the amount of income someone is entitled to earn without paying tax, per year. As of now, the threshold for personal allowance is set at £12,570. It has not been raised since the 2018/19 tax year.

The personal allowance decreases for those who earn over £100,000 per year. For every £2 earned over £100,000, £1 of tax-free allowance is deducted.

Self-employed people qualify for both the personal allowance and the ‘trading allowance’, which allows them to claim the first £1,000 of their taxable profits, tax-free.

If you earn over the threshold, you’ll be liable for up to 45% income tax, depending on the amount you earn annually. The current tax rates for this financial year are:

• Basic rate (£12,571 to £50,270): 20%
• Higher rate (£50,271 to £125,140): 40%
• Additional rate (over £125,140): 45%

 Why the petition and why now?

In February, Frost said the petition was created to “help low-earners get off benefits and allow pensioners a decent income” amid the cost of living crisis.

According to a study reported by Health & Protection, 66% of UK workers said they were worried about the cost of living crisis, with 48% reporting that it was affecting their ability to do their jobs properly. 

With inflation still high, real wages are falling. The result is something called ‘fiscal drag’, an economic term that describes when tax thresholds are frozen, leading to increased taxable income. It results in a drop in take-home pay for earners, even if their salary stays the same.

Sole traders in particular have felt the pinch of the cost of living crisis. Research reported by Fresh Business Solutions revealed that 58% of self-employed workers have or are planning to increase their day rates due to cost pressures.

An increase in the personal allowance would boost takings for the self-employed, enabling them to also adjust their pricing strategies to offer more affordable products and services.

What’s next for the petition?

At the time of writing, the petition currently has 202,657 signatures.

But despite the high amount of support, the government stated that it has “no plans to increase the personal allowance to £20,000”, and that doing so “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 added. 

“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.”

Despite the government’s response, parliament will need to consider the petition for debate as it has received over 100,000 signatures. However, a date is yet to be confirmed.