14-05-2025
New UK Government update on calls to increase Personal Allowance to £20,000
More than 252,500 people signed an online petition calling for an increase to the £12,570 Personal Allowance.
Income tax rises for Scots in April - how the changes affect you
The UK Government has rejected proposals in an online petition to increase the Personal Allowance from £12,570 to £20,000. More than 252,500 people from across the UK signed the e-petition that was debated in Westminster Hall earlier this week.
Only a handful of MPs took part in the debate which was observed by petition creator Alan David Frost, who sat in the public gallery. The bottom line from Exchequer Secretary to the Treasury, James Murray, is that it would cost £50 billion to increase the Personal Allowance to £20,000.
He told MPs: 'I recognise the views of everyone who has put their name to the petition, and let me be clear that, as a Government, we want taxes on working people and on pensioners, who have worked hard all their lives, to be as low as possible.'
Mr Murray continued: 'We were elected to put more money in people's pockets and, crucially, we were elected to do so in a fiscally responsible way. That is a critical point to understand.
'We want to keep taxes on working people and pensioners as low as possible, but if we were to follow the calls of some Opposition parties and abandon fiscal responsibility, it would lead to economic chaos and the collapse of public services, and that would harm working people and pensioners the most.'
Mr Murray explained: 'Raising the Personal Allowance to £20,000 would cost more than £50 billion. That is more than the £45 billion of unfunded tax cuts announced by Liz Truss in her disastrous mini-Budget. Conservative and Reform MPs may have cheered Liz Truss on, but like the British people, we in the Labour party know the damage that that caused, and we will never let it happen again.
'To put it another way, if £50 billion was taken out of public services, that would be equal to wiping out almost the entire UK defence budget or slashing the NHS by a quarter. The British people will not be the winners if public services collapse or chaos returns to the economy.'
He highlighted how the Labour Government is doing 'everything we can to support working people and pensioners'.
Mr Murray said: 'In our first Budget, we decided not to extend the freeze on personal tax thresholds, meaning that people will be able to keep more of their income. We are supporting hard-working families and pensioners through the plan to make work pay and through our significant increases to the national living and minimum wages and the State Pension.'
He also said that the UK Persona Allowance is 'one of the more generous personal tax allowances in the OECD, and the most generous in the G7'.
The Personal Allowance will be frozen at £12,570 until the 2028/29 financial year.
Online petition
Petition creator Alan David Frost argues it is 'abhorrent to tax pensioners on their State Pension when it is over the personal allowance' threshold and says the increase would 'inject more cash into the economy'.
The 'raise the income tax personal allowance from £12570 to £20000' petition states: 'We think this would help low earners to get off benefits and allow pensioners a decent income.
'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.'
Responding to the proposals in the petition on February 20, the Treasury gave a similar response to Mr Murray. The Department said: "The Government is committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds."
It also went on to say that the UK Government has no plans to increase the Personal Allowance to £20,000.
You can read the full response on the petitions-parliament website here.
State Pension payments 2025/26
Weekly State Pension payments increased on April 7, however, people will not see an immediate increase as the contributory benefit is paid in arrears.
Full New State Pension
Weekly payment: £230.25
Four-weekly payment: £921
Annual amount: £11,973
Full Basic State Pension
Weekly payment: £176.45
Four-weekly payment: £705.80
Annual amount: £9,175
To check your own future State Pension payments, use the online forecasting tool on here.
State Pension and tax
The most important thing to be aware of is that someone on the full New State Pension will not pay income tax, but older people with additional income through employment, private or workplace pensions, might need to pay tax.
For most people, this would be paid automatically through PAYE on employment and tax on private pensions. Anyone who doesn't pay tax automatically pays tax through deductions, would receive a tax bill from HMRC the following summer to be paid by January in the next year.
There has been a fair bit of speculation on the number of pensioners who will pay tax before the Personal Allowance freeze ends, but currently of the 13 million State Pensioners across the UK, some 8.51 (65%) already pay some tax in retirement, so this isn't something new.
And with auto-enrolment in the workplace - now in its 13th year - more people will benefit from increased income in retirement and will probably pay tax - which will typically be deducted from their private pension.
It's important to understand any tax to be paid in retirement is based on the amount of income earned above the threshold - not the total additional income. For example, if someone has a total annual income of £13,000, they will pay tax on £430 - which is the amount above the £12,570 threshold.
Those affected would then have to pay HMRC 19 per cent of their income above the threshold, which is the starter rate of tax in Scotland (20% in England).
