£20,000 income tax ruling as Parliament debates | U.Okay.Finance News
Ministers have rejected a plea to raise the income tax threshold from £12,570 to £20,000 and “let people keep more of their own money”.The determination of Rachel Reeve was spelt out as MPs debated a petition calling for a radical shake-up, which was signed by more than 250,000 people, together with many pensioners.The petition, which was organised by Alan Frost, a pensioner from Bridgwater in Somerset, was described as a “cry for help” by MPs.However, these participating within the debate heard that the fee of raising tax thresholds would most certainly run to £40 billion to £60 billion a 12 months and doubtlessly as a lot as £90 billion.MPs from Labour, the Lib-Dems and Conservatives expressed sympathy for pensioners and low earners, though none would offer a dedication to raise the tax threshold to £20,000.By distinction Reform UK has backed the £20,000 threshold proposal as half of its tax coverage, arguing that it might “reward work” and carry stress off struggling households by letting people “keep more of their own money.”And whereas the get together’s chief Nigel Farage has promoted the coverage, none of the 5 Reform MPs took half within the Westminster Hall debate.James Murray, Labour’s Exchequer Secretary to the Treasury, rejected the call saying it might price £50 billion, successfully wiping out the UK defence finances or a quarter of spending on the NHS.He stated: “No responsible government could raise the tax threshold to £20,000 at a cost of £50 billion.”Mr Murray stated: “As a government, let me be clear we want taxes on working people and on pensioners who have worked hard all their lives to be as low as possible. We were elected to put more money in people’s pockets and crucially we were elected to do so in a way that is fiscally responsible.”We wish to keep taxes on working people and pensioners as low as potential, but when we have been to observe calls from some opposition events and abandon fiscal duty that will result in financial chaos and the collapse of public providers, harming working people and pensioners probably the most.”The debate was opened by Lewis Atkinson MP (Labour, Sunderland Central). While Mr Lewis is not a supporter of the initiative, he put the case in favour of the policy on behalf of Mr Frost and other petitioners who are concerned that a growing number of ordinary workers and pensioners being drawn into tax—and higher tax—bands.Mr Atkinson said Mr Frost made the case that such a change would be a boost for both pensioners and people on low incomes.The call for change comes amid growing anger at what critics describe as a “stealth tax” brought about by the long-standing freeze on income tax thresholds.The freeze was first introduced by then Conservative Chancellor Rishi Sunak in the March 2021 Budget, initially due to end in 2026 but extended by the Tories until 2028. Rachel Reeves adopted the policy in her own Budget.As a result, the tax-free personal allowance has remained locked at £12,570, with the higher 40% tax rate still kicking in at £50,270.Those earning more than £125,140 pay the top rate of 45%—meaning a growing number of professionals, middle earners and even skilled workers are now falling into higher tax brackets.Experts have warned that this policy, known as fiscal drag, is quietly swelling government coffers while shrinking household budgets.The Office for Budget Responsibility estimates that by the 2025–26 tax year, the ongoing threshold freeze will have pulled an extra 1.3 million people into the income tax net, while a further one million will be pushed into the 40% higher-rate band.On top of that, a growing number of earners—particularly in the South East and parts of London—are now breaching the 45% bracket, often without realising until their take-home pay unexpectedly drops.Independent analysis by the Institute for Fiscal Studies (IFS) suggests that the number of higher-rate taxpayers will rise by around 400,000 every year while the freeze continues—making it one of the most potent silent tax hikes in recent memory.The petition demanded that the personal income tax allowance be raised from £12,570 to £20,000—a move supporters say would lift millions out of poverty, reduce reliance on benefits, and help pensioners keep more of their retirement income.The Westminster petition argued raising the threshold to £20,000 “would help low earners to get off advantages and permit pensioners a first rate income”.It added: “We think it is abhorrent to tax pensioners on their state pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.”Despite the rising anger, the Treasury has flatly rejected the petition’s central demand. In its formal response, a Government spokesperson stated: “The Government has no plans to increase the Personal Allowance to £20,000. Increasing the Personal Allowance to £20,000 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 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.”
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