HMRC Faces Pressure to Raise Personal Tax Allowance Amid Cost of Living Crisis

The UK’s HM Revenue and Customs (HMRC) is currently under scrutiny as a petition demanding an increase in the Personal Tax Allowance to £20,000 has garnered over 200,000 signatures. This movement comes in response to the ongoing cost of living crisis, with advocates arguing that such a change would significantly benefit low earners and pensioners.

Key Takeaways

• A petition for raising the Personal Tax Allowance to £20,000 has received over 200,000 signatures.

• Advocates argue this increase would help low earners and pensioners.

• The current Personal Tax Allowance stands at £12,570, unchanged since previous years.

• The government maintains that increasing the allowance would have significant fiscal implications.

Background of the Petition

The petition, initiated by Alan Frost, calls for the Labour Party government to raise the income tax personal allowance from £12,570 to £20,000. Supporters believe this adjustment would alleviate financial burdens on low-income households and provide pensioners with a more substantial income, especially as many are currently taxed on their state pensions.

The petition highlights the following points:

• Support for Low Earners: Raising the allowance would help many individuals escape the benefits system, allowing them to retain more of their earnings.

• Pensioner Relief: Many pensioners find themselves taxed on their state pensions, which often exceed the current personal allowance, leading to calls for reform.

Government's Response

In response to the petition, a Treasury spokesperson reiterated the government’s commitment to maintaining low taxes for working individuals while ensuring fiscal responsibility. They stated:

• No Plans for Increase: The government has no intentions of raising the Personal Allowance to £20,000, citing the significant fiscal cost of billions of pounds annually.

• Impact on Public Services: An increase in the allowance would substantially reduce tax receipts, affecting funding for essential public services such as healthcare and education.

• Ongoing Review: The government continues to review tax policies, with any changes to be announced during fiscal events.

Current Tax Landscape

For the 2024/25 tax year, the basic personal allowance remains at £12,570. This figure has not changed in recent years, despite rising living costs. Here’s a brief overview of the current tax structure:

Income Level	Tax Rate
Up to £12,570	0%
£12,571 to £50,270	20%
£50,271 to £100,000	40%
Over £100,000	45%

Individuals earning above £100,000 see their personal allowance gradually reduced, and those with incomes significantly higher may not qualify for any personal allowance at all.

The Broader Implications

The HMRC's latest statistics reveal a concerning trend: an increasing number of pensioners are being pulled into the income tax bracket due to stagnant tax thresholds amidst rising pension incomes. In the 2022/23 tax year, there were approximately 7.13 million taxpayers of pension age, marking a 5.7% increase from the previous year. This trend is expected to continue as the state pension rises while the personal allowance remains frozen.

The implications of these statistics are profound, particularly for pensioners who rely on a combination of state pensions and other income sources. As the personal allowance fails to keep pace with inflation and rising living costs, many find themselves facing unexpected tax liabilities.

Conclusion

As the debate over the Personal Tax Allowance continues, the government faces mounting pressure to reconsider its stance. Advocates argue that raising the allowance could provide much-needed relief to low earners and pensioners, while the government remains focused on fiscal responsibility and the implications of such a change on public services. The outcome of this discussion will be crucial for many households across the UK as they navigate the ongoing cost of living crisis.

Sources

• HMRC could be forced to hike Personal Tax Allowance to £20,000 for UK households, Birmingham Live.

• HMRC update on demand to raise personal tax allowance to £20,000, Cambridge News.

• HMRC update on personal tax allowance 'rising from £12,750 to £20,000', Leeds Live.

• HMRC stats show pensioners increasingly dragged into income tax; Gender pay gap still close to 20% - IFA Magazine, IFA Magazine.