How much extra money would Britons get if Andy Burnham raises the tax-free personal allowance?
Andy Burnham takes over as prime minister on Monday and one of his top priorities is tackling the cost of living crisis.
Replaces Keir Starmer said Times He wanted to bring a “tangible” improvement to households, saying when surveying voters in Makerfield “the thing I hear most on the doorstep is the tax-free personal allowance threshold”.
The personal allowance, which is the amount of income a person can receive annually before they start paying tax on their earnings, has been frozen at £12,570 for five years. Similarly, tax band thresholds remained at the same level rather than increasing as wages grew.
The process, called fiscal drift, means that as wages naturally rise with inflation, more people are drawn either to pay taxes for the first time or to pay a higher tax bracket.
But if Mr Burnham scraps the personal allowance it will give basic rate taxpayers in particular little breathing room.
How much can individual allowance be raised?
Ultimately, this is somewhat of a guessing game until the new prime minister gives more details of his plan.
Previously, the personal allowance increased each year in line with CPI inflation, but there are provisions to change this, such as freezing it.
Two potential options for Mr Burnham would be to either use the CPI inflation figure or – for a slightly larger increase – remove it in line with the government’s pension triple lock policy.
While there likely won’t be a change until April next year in either case, it’s possible to use the 2025 figures to provide a representative look at what any changes would mean for taxpayers.
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How much does it save for a basic rate taxpayer?
For the purpose of illustrating these calculations, we will use the average UK basic salary of £35,000 and assume no additional income or payments other than income tax and National Insurance (NI).
CPI inflation figures for September of the previous year are generally used to calculate changes that will come into effect the following April, when the next fiscal year begins. For this example, this means using data from September 2025, when CPI inflation is 3.8 percent.
This will increase the personal allowance from £12,570 to £477.66, rounding up to £480, giving a new figure of £13,050.
It is currently taxed at 20 per cent on a salary of £35,000, which gives taxable income of £22,430 – so £4,486.
Following our theoretical change to the personal allowance, only £21,950, or £4,390, will be taxed at 20 per cent.
This equates to an annual saving of £96 for the employee; If NI were increased in a similar way we could potentially add £38.40 a year to this, contributing a total of £134.40 a year extra ‘pocket’.
Kate Steere, personal finance expert at comparison site Finder, says the figures are unlikely to be hugely life-changing for most workers, but any additional untaxed income would likely be welcomed by Britons at this stage after a series of higher taxes on both businesses and people over the past two years.
And Ms. Steere added that this could be an immediate boost for Mr. Burnham based on the amount of people he would impact.
“Andy Burnham wants to create ‘breathing space’, but would that be a short exhale rather than a proper breath of fresh air?” he said. Independent.
“Assuming the personal allowance actually rises in line with September’s CPI inflation figure, everyone in the basic rate tax band will be better off by around £96 a year. For those in higher tax rates (up to £100k) the savings will be £192, which will then reduce for anyone earning between £100k and £125,140.”
“These amounts are not life-changing, but they will undoubtedly be a welcome boost. The size of these savings is also an undeniable positive; around 40 million Britons will benefit.”
Additional rate taxpayers see their personal allowance reduced when their earnings exceed £100,000, dropping by £1 for every extra £2 earned, meaning they have a personal allowance of zero once they reach the £125,140 threshold.
In an alternative scenario, if Mr Burnham breaks with tradition and applies the triple lock rule on a one-off basis, the personal allowance would increase by 4.1 per cent based on 2025 wage growth figures.
Instead, this means a personal allowance of £13,090; Based on our basic taxpayer example, that’s a saving of £104, or a total saving of £145.60 including NI.
What will it cost to the Treasury?
When the economy is better, it is possible to lower taxes and have a nation that continues to grow; but the UK has a low GDP and the Treasury has a high level of public debt, which Rachel Reeves is trying to reduce.
While individual savings per head may not seem too exaggerated, the tax loss could amount to between £4.5bn and £5.5bn annually, according to HMRC Ready Reckoner figures, which estimate the impact of changes to tax.
This will probably need to be offset at least in part by tax increases elsewhere, perhaps by an increased additional income tax rate as Mr Burnham has previously hinted he would look at.
“As we know, there is no such thing as free money,” Ms. Steere said. “Is this a case of relief that will hit somewhere else today?
“Burnham has actively spoken out in favor of replacing council tax with an annual property tax. For millions of homeowners, this structural change could mean this week’s nice little bonus will evaporate as quickly as it arrived.”
