The UK's standard tax-free personal allowance, currently set at £12,570, will be 'looked at' in the Budget, Prime Minister Andy Burnham has confirmed. This threshold has been frozen since 2022 and is scheduled to remain static until April 2031, a policy that has drawn significant criticism for its impact on household finances.
"there is no commitment at this point to change, but we will look at that at the budget."
— Prime Minister Andy Burnham (July 22, 2026)
Why now?
The Prime Minister's latest comments signal a potential re-evaluation of a policy that has been described as a 'stealth tax'. Just hours before formally taking office, Mr Burnham told The Times that the personal allowance freeze was "lodged in my mind" due to "frustration" heard during the Makerfield by-election. This suggests a political imperative to address the rising tax burden on ordinary households, despite the significant fiscal challenges facing the government.
Who wins and who loses?
The freeze on the personal allowance is a prime example of 'fiscal drag', where inflation and wage growth automatically pull more workers into paying income tax or into higher tax bands. This mechanism has generated billions in extra revenue for the Exchequer, but at a cost to individual taxpayers.
HM Treasury estimates that the current freeze is projected to bring 780,000 people into income tax for the first time by 2030. Additionally, 920,000 people are expected to be pushed into the higher-rate tax band, and 4,000 into the 45% additional rate, over the same period.
If the allowance were to be raised, lower earners, who are increasingly close to the income tax threshold, would benefit most directly. Middle and higher earners, currently facing the prospect of being dragged into higher tax bands, would also see a reduction in their tax burden. The primary 'loser' in such a scenario would be the Treasury, which would forgo significant revenue.
What critics say
Critics argue that the frozen personal allowance exacerbates the ongoing cost-of-living crisis by reducing the disposable income of households. Experts highlight that this 'stealth tax' effectively increases the real-terms tax burden without any explicit change in tax rates, making the impact less visible to the public.
However, increasing the personal allowance comes with a substantial price tag. HM Treasury, in response to a public petition for an £18,000 personal allowance, stated that such a move would incur a "significant fiscal cost of over £40 billion per year." This amount, they noted, is equivalent to approximately one-fifth of the NHS Budget in England or about two-thirds of defence spending. Such a reduction in tax receipts would inevitably decrease funds available for essential public services, presenting a difficult balancing act for the Prime Minister.
What this means for you
The current freeze means that as your wages increase, even if only to keep pace with inflation, a larger proportion of your income could become subject to income tax, or you could be pushed into a higher tax bracket. This reduces your take-home pay and disposable income, making it harder to manage rising living costs.
What happens next?
Prime Minister Burnham has been clear: "no commitment, no unfunded promise." The decision on the personal allowance will be made as part of the wider Budget considerations. This means households will need to await the Chancellor's statement to understand the government's final position. Alongside these discussions, Mr Burnham has already announced a concrete policy change: single bus fares across England will be capped at £2 from January 2027, reversing a previous decision to increase the cap to £3.
Sources
- Prime Minister Andy Burnham (July 22, 2026) — Statement on personal allowance
- Prime Minister Andy Burnham (July 20, 2026) via The Times — Pre-PM comments on personal allowance
- HM Treasury — Response to petition for £18,000 personal allowance