Burnham Signals Possible Rise in UK Tax-Free Personal Allowance, but No Commitment

Prime Minister Andy Burnham told broadcasters during a visit to Bath that the government “will look at” raising the personal allowance—the income level at which individuals begin paying tax—but added there is “no commitment at this point.”

Bloomberg

The personal allowance has been frozen at £12,570 since the 2021-22 tax year. As wages rise with inflation while the threshold remains static, fiscal drag pushes more earners into the tax net. The Office for Budget Responsibility projects up to one million additional pensioners could be liable for income tax by 2030-31, and the Resolution Foundation estimates 780,000 new taxpayers and 920,000 moving into the higher-rate band under the current freeze.

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• Current threshold: £12,570 (frozen since 2021).

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• Fiscal drag impact: Over-65s paying tax have exceeded 10 million for the first time.

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• Cost of a modest uplift: AJ Bell calculates each £100 increase would cost the Treasury roughly £1 billion per year, implying a full inflation-adjusted allowance of about £16,000 could cost ~£35 billion.

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• Resolution Foundation estimate: Uplifting the allowance by inflation over the next three financial years would cost £9.2 billion by 2029-30, or £3.7 billion for a single-year uplift in 2027-28.

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• EY analysis: A £100 increase would exceed £1 billion in cost; a 10 % rise would cost £11.7 billion.

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Burnham said the issue was “lodged in my mind” after hearing constituent concerns in the Makerfield by-election. The Treasury has not released a definitive cost figure, but the analysts above illustrate the scale of potential expenditure. In the same cabinet meeting, Burnham highlighted recent measures such as the VAT exemption on electricity bills and a forthcoming £2 bus-fare cap as evidence of immediate action on the cost-of-living crisis.

Bloomberg

Reform UK, which previously pledged to raise the allowance to £20,000, has downgraded the target to an aspirational goal, citing fiscal burden. The Institute for Fiscal Studies warned that Reform’s original pledge could have cost up to £80 billion annually, underscoring concerns that any substantial increase would strain public finances.

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Cost projections vary widely: the Resolution Foundation’s £9.2 billion estimate contrasts with AJ Bell’s £35 billion figure for a full inflation-adjusted uplift, while EY’s per-£100 cost exceeds £1 billion and its 10 % scenario reaches £11.7 billion. No official Treasury estimate has been published, leaving the precise fiscal impact unresolved.

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• “There is no commitment at this point to change, but we will look at that at the budget,” — Andy Burnham, UK prime minister

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• “Cutting income tax bills by increasing the tax-free personal allowance is clearly an attractive political pitch, but there is no such thing as a free lunch.” — Charlene Young, AJ Bell

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The Budget will be the first formal venue where the personal allowance is examined, though no date has been set in the sources. A separate cost-of-living measure—VAT-free electricity bills—will take effect on October 1, saving an average household about £45 per year.

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