£45,000 Tax Allowance in 2025: A petition demanding a significant change to the UK’s personal tax allowance thresholds has gathered over 32,425 signatures, sparking public and political debate. The campaign, initiated by Denver Johnson, urges Chancellor Rachel Reeves to increase the threshold for paying income tax from £12,570 to £45,000, aiming to reduce the financial burden on lower-income groups.
Understanding the Issue: What Is Fiscal Drag?
Since 2021/22, the UK government has frozen various tax allowances, including the personal tax allowance. This freeze, often referred to as “fiscal drag,” increases taxable income without changing tax rates. As wages rise due to inflation, more people become subject to taxation, and some taxpayers move into higher tax brackets. This approach has significantly boosted government revenue but has also faced criticism for disproportionately affecting those on lower incomes.
The Petition’s Aim and Growing Support
Denver Johnson, the petition’s creator, argues that the current tax system exacerbates inequality. He stated, “The Personal Allowance has been kept unreasonably low, punishing the poorest members of society while benefiting the wealthy.”
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The petition, doubling its signatures within days, has surpassed 30,000, triggering a required response from the Department for Work and Pensions. If the petition reaches 100,000 signatures, it will be eligible for debate in Parliament, marking a critical milestone in the fight for fairer taxation.
The Financial Impact of Frozen Tax Thresholds
The freeze on personal tax thresholds is projected to have widespread consequences. The Office for Budget Responsibility (OBR) estimates that by 2025/26, this freeze will pull 1.3 million people into the tax system and push one million into higher tax brackets.
Expert Opinions on the Issue
Finance expert Martin Lewis highlights how frozen thresholds increase tax burdens. He explains, “As earnings rise, even modestly, more of your income becomes taxable. This ensures that a larger share of your earnings is lost to taxes, providing a steady stream of revenue for the government.”
Victor Bulmer-Thomas, in a blog for the London School of Economics, warns that the freeze disproportionately affects lower-income groups. He notes that a typical worker in the bottom income decile has seen their tax rate jump by 37.7%, far exceeding the basic rate of 20%. He cautions that such an approach risks alienating voters and could lead to political repercussions.
Government’s Position on Tax Thresholds
Despite public outcry, Rachel Reeves’ recent budget confirmed that income tax and National Insurance thresholds will remain frozen until 2028. This decision aligns with the previous Conservative government’s policies, although speculation suggested Labour might extend the freeze to 2030.
While freezing thresholds helps the government generate revenue without directly increasing tax rates, critics argue that it amounts to a stealth tax on the most vulnerable.
The Road Ahead
As public awareness grows, the petition’s success may push the government to reconsider its stance on tax thresholds. Whether it triggers meaningful change or becomes a rallying cry for future political campaigns remains to be seen.
For now, the issue of fiscal drag underscores the broader debate about balancing government revenue needs with ensuring a fair tax system.
The growing support for this petition highlights widespread frustration with the UK’s tax system. Freezing personal tax allowances has added to the financial strain on lower-income households, raising ethical and political questions about fairness. While the government relies on this approach for revenue, its long-term implications for inequality and public trust cannot be ignored.
FAQ
What is fiscal drag?
Fiscal drag occurs when tax thresholds are not adjusted for inflation, causing more people to pay taxes or move into higher tax brackets as their incomes rise.
What is the purpose of the tax allowance petition?
The petition seeks to raise the UK’s personal tax allowance threshold from £12,570 to £45,000, aiming to reduce the tax burden on low-income earners.
How many signatures are required for the petition to be debated in Parliament?
The petition needs 100,000 signatures to be considered for a debate in Parliament.
How does freezing tax thresholds affect taxpayers?
Frozen thresholds mean that as incomes rise over time, a larger portion becomes taxable, disproportionately impacting lower-income earners.
When will the current tax thresholds be reviewed?
Tax thresholds are frozen until April 2028, as confirmed in the recent budget.
I would like to know more about this loophole.
Hello James D Walker,
Since 2021/22, the UK government has frozen various tax allowances, including the personal tax allowance. This freeze increases taxable income of government without changing tax rates. This approach has significantly boosted government revenue. So this is loophole in tax system.
Now The campaign, initiated by Denver Johnson, urges Chancellor Rachel Reeves to increase the threshold for paying income tax from £12,570 to £45,000. Which will lead to some positive results like Low Income group will have to pay taxes after the £45,000 income – So this will not effect the low income families.