Income Tax: Personal Allowance

Monday 12th May 2025 Westminster Hall

16:30

[Lewis Atkinson (Sunderland Central) (Lab)]

I beg to move,

That this House has considered e-petition 702844 relating to the Income Tax Personal Allowance.

It is a pleasure to serve with you in the Chair, Mr Stuart, and it is a privilege to open the debate as a member of the Petitions Committee.

All colleagues from all parties will recognise the priority that the public place on improving living standards, as our conversations with constituents, polling and the facts of the matter tell us. The reality is that average disposable incomes after tax fell from 2019-20 to 2023-24 —an unprecedented and shocking situation in which people were left poorer at the end of the last Parliament than they were at the start of it. That is the key context for today’s debate, which has been triggered as a result of more than 250,000 citizens signing the petition on income tax personal allowances. It also speaks to wider and entirely understandable public frustration about living standards.

In preparation for the debate, I had the pleasure of talking to Mr Alan Frost, the creator of the petition and a constituent of the hon. Member for Bridgwater (Sir Ashley Fox). Mr Frost, who is in the Gallery, explained that he has recently retired, having worked his whole life. He feels a sense of injustice that his state pension is considered as income for tax purposes, and that the tax thresholds he faces are not increasing.

The events that led to that situation are as follows. In the 2021 spring Budget, the right hon. Member for Richmond and Northallerton (Rishi Sunak), who was Chancellor at the time, announced that the income tax personal allowance threshold of £12,570 would be frozen until April 2026. In the 2022 autumn statement, the Chancellor at that time, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), announced that the freeze would be extended for a further two years until April 2028. Following the change of Government, the current Chancellor announced in her autumn 2024 Budget that the freeze would not be extended any further, and therefore income tax personal allowances are expected to next rise in April 2028.

Although Mr Frost is a pensioner and his petition reflects a desire to boost pensioner incomes, he also believes that significantly increasing the personal tax allowance would benefit those in work, boosting incomes and reducing the need for benefits. That belief reflects the reality that less than a quarter of the 37 million income tax payers in the UK are over the age of 65. The vast majority of those paying income tax are of working age and are not receiving the state pension.

In their written response to the petitioners, the Government highlighted that making the suggested changes to the personal allowance would cost “many billions of pounds”. I am sure that the Minister will say more about that when he responds, but cost is a key element to discuss in our debate. It is Parliament’s responsibility to agree the ways and means of any policy it makes—that is, how to pay for what we decide to do.

I gently suggest that the events of the last Parliament remind us how serious that responsibility is. The mini-Budget of September 2022 announced tax cuts costing around £45 billion without explaining how they would be funded, and the market reaction to that announcement left ordinary people paying the price. An emergency reversal of those tax changes followed, but not before high inflation and interest rates hit the standard of living. I therefore urge our debate to be conducted in full consideration of the cost and funding of any tax policy changes.

Were income tax personal allowances to rise in the way suggested by the petition, there would be several other linked tax policy choices to be made, and those choices would determine the full cost of the change. For example, would the size of the tax bands above the personal allowance be maintained? Currently, the basic rate of 20% is levied above the personal allowance and up to about £50,000 of income. Would the size of that band be maintained if the personal allowance were increased by £7,500? If so, the point at which the higher rate of tax takes effect would, in turn, increase to almost £58,000, at further cost to the Exchequer.

Similarly, the additional rate of tax is currently levied on incomes above £125,000, so if the personal allowance was to rise, would that level rise proportionately too? Finally, the income tax personal allowance is aligned with the level at which people start making national insurance contributions; should that level also rise to £20,000, or would we return to a more complicated tax system in which income tax and national insurance thresholds were no longer harmonised?

[Sir Ashley Fox (Bridgwater) (Con)]

I am grateful to the hon. Gentleman for introducing the debate. Will he join me in paying tribute to my constituent, Mr Alan Frost, for raising the number of signatures required to achieve the debate? Does he also agree that freezing the level of the basic allowance at £12,570 most heavily impacts pensioners with limited income, who find themselves paying more income tax on small occupational pensions as time goes by?

[Lewis Atkinson]

Of course, I join the hon. Gentleman in paying tribute to his constituent for securing this debate; 250,000 signatures is an extraordinary level of engagement in the democratic process, and that is to be applauded. I will make some points about the distribution of the benefits of income tax freezes later on in my speech.

The cost of the policy requested by the petition depends on the answers to the questions I just posed. Other Members may wish to speak about how they would approach such matters, but, to aid debate, I thought it would be useful to present some indicative costs. At this point, I want to place on record my thanks to the staff of the House, including those from the Petitions Committee and the Library, for their work in helping me to access such information.

The House of Commons Library estimates that it would cost more than £60 billion to increase the personal allowance to £20,000, make corresponding increases to the higher rate tax threshold, and raise the national insurance threshold to £20,000 to maintain alignment. That figure is consistent with the range of costs expected by the Institute for Fiscal Studies, which I also met in preparation for this debate. The IFS estimates that increasing the personal allowance to £20,000 would cost somewhere in the range of £40 billion to £90 billion, depending on the choices made on the related tax matters that I have outlined.

To put those figures into context, at a minimum cost of £40 billion, the proposal would be at least as large as the tax measures proposed by the September 2022 mini-Budget, which were then quickly reversed after the economy crashed. At the higher end of the estimates—£90 billion—the cost of such a change would be around the same size as the entirety of public revenue spend on education, or two thirds of the total cost of the state pension. It is not for me, in introducing the debate, to advocate one way or another, but I urge Members contributing to speak frankly about the costs and funding of any tax changes they favour.

I hope it is also useful briefly to provide some context about how individuals throughout the UK would be impacted by increases in the personal allowance. The IFS notes that the income level of one third of adults is already below the existing personal allowance. That group—those with the lowest incomes in society—would not benefit from the changes sought by the petition, while the greatest benefits would be received by those who are best off. That is to say, in net, such a change would be regressive, increasing inequalities of income.

[Wendy Morton (Aldridge-Brownhills) (Con)]

I thank the hon. Gentleman for setting out the petition’s argument. I came to the debate because an unusually high number of my constituents signed the petition. On the hon. Gentleman’s point about disparities, does he not agree that a considerable number of pensioners feel aggrieved and hard done by at the moment—and rightly so—because of a number of a policy decisions? That is why it is worth the Government having a proper look at the petition and what it proposes, and not just the financial aspect. If pensioners were able, for example, to earn a little more before they hit the threshold, they would have more to put back into the economy, and those who continue to work might want to do so for a little longer.

[Lewis Atkinson]

I thank the right hon. Lady for that intervention. Of course, it was the previous Government who harmonised the income tax thresholds for pensioners and those of working age alike, the situation having previously been different. I absolutely recognise the stress felt by pensioners around the land. That is why such a debate is difficult without wider consideration of pension incomes and in particular the maintenance of the triple lock, which is not the subject of this debate, but which strikes me as important to consider.

As I was saying, there is a disparity between the potential benefits of a significant increase in the personal allowance for those with different levels of income, with those earning the most benefiting the most from such an increase. Members may also wish to know that there would also be significant geographic differences in the impact of any changes. The places with average lower levels of income—for example, Sunderland—would lose out relative to places with higher average incomes, which are disproportionately in London and the south-east. Were such tax changes funded by cutting public services, regions such as the north-east would lose out even more. I hope those matters of context will help inform the debate this afternoon.

I will end where I started, with a reflection of public sentiment on living standards. As other Members have mentioned, there is undoubtedly a strength of public feeling on these matters. We have to be frank: it is our job to improve the incomes and lives of the people that we serve. When I am out in Sunderland Central every week, that is the key issue that people raise with me, because for years they have been no better off and, in many cases, they are struggling to make ends meet. I get it. Putting more money in people’s pockets so they can do what they want is the public’s top priority. A key part of that is managing the public finances well. We all saw what the Liz Truss mini-Budget and unfunded half-baked tax plans did to living standards.

[Wendy Morton]

Will the hon. Gentleman give way on that point?

[Lewis Atkinson]

No, I will make progress. The public expect us to do better than that and they expect us to do more. They want wages and pensions to go up faster than inflation, as is now starting to happen. They want to the personal allowance to rise. I pay tribute to Mr Frost again for calling for those measures, and to all those who signed the petition. We should be hugely thankful to have citizens who are engaged in our parliamentary democracy, as the 250,000 people who signed the petition are. I look forward to an interesting, and I hope informed, debate.

[Graham Stuart (in the Chair)]

Members will have noticed that the in-Chamber clock is not functioning, but the time can be seen on the annunciator—time is probably not of the essence in this debate. I remind Members that if they want to speak, they should bob, but I do not think that applies either.

16:43

[Mr Tom Morrison (Cheadle) (LD)]

It is an honour to serve under your chairship, Mr Stuart. One in five people in the UK is now living in poverty. That is around 14 million people. Those are people in our communities: we see them at the school gates, we go to church with them and we meet them every day in our constituencies. Those people are struggling to navigate ever-increasing energy bills, rising food prices and other costs, while their wages do not keep up with inflation.

Last year, I was door-knocking in Gatley village, which sits in my constituency. It was one of those incredibly cold nights—the kind of cold that really bites through people’s fingertips. I came to one house where the lights were off. I was not expecting an answer, but a woman answered the door layered up in two dressing gowns, and with two small boys behind her. We talked briefly about the issues she was facing: rising energy prices, increases in her mortgage and the struggle to keep her boys fed and warm. However, what really stood out to me was the look in her eye, because it was the same look that my mum had when I was growing up.

When I was about 13, my mum, brother and I faced homelessness after our landlord hiked up the rent. My mum did everything to protect my brother and me from what was happening, and it is only now that I realise what she went through. She missed meals so her boys could eat. She would sometimes sit in the dark alone when the electricity meter ran out of credit and we had gone to bed. That was the day-to-day life that we were living. Many years later, seeing those two boys standing behind their mother in a freezing cold house reminded me how important it is to keep standing up for those people who are struggling day by day.

I thank Mr Frost for bringing this issue to the House. I believe that raising the personal income allowance could ease the burden that many people are facing, although it has to be when the finances allow. However, whether the Government listen to the signatories of the petition or not, more must be done to help those who are struggling.

The Conservatives effectively raised taxes by freezing the income thresholds for several years. Families and pensioners should not have to pay to clear up the economic mess left by the previous Government. This Government must find ways to lower the tax burden, so that more people are not dragged into poverty and so that more families can live in dignity and security.

According to Resolve Poverty, which was formerly known as Greater Manchester Poverty Action, nearly 20% of children in Cheadle live in poverty, while across Stockport the figure is over 30%. Make no mistake—the figure should be 0% everywhere. Raising the personal allowance would help, but if the Government refuse to do that, at the very least they must better support low-income earners who are struggling to afford the basics.

One way that the Government could act is by scrapping the unfair child benefit cap, which is one of the biggest drivers of rising child poverty. Many charities from across the UK, including Child Poverty Action, Citizens Advice and Save the Children, are advocating for the cap to be scrapped. As Dan Paskins, executive director of Save the Children, has said:

“good intentions are not enough. Children growing up in poverty need action and no child poverty strategy will be credible unless the two-child limit is scrapped”.

I finish by reminding the Minister of the story that I shared earlier: that mother, with two young boys standing behind her, doing everything she could to ensure that they were being looked after. No one wants to struggle. No one wants to choose between heating and eating, but it is still happening. In the sixth richest country in the world, that is not acceptable. The Government must do more to help those who are in work but still struggling, and more to provide support for those children being dragged into poverty.

16:47

[Daisy Cooper (St Albans) (LD)]

It is a pleasure to serve under your chairmanship, Mr Stuart.

I start by thanking Mr Frost for launching this petition and the 250,000 people who have signed it. The number of people who have signed it speaks to the strength of public feeling about this issue, which is a serious policy challenge for all political parties. Indeed, I think the petition does more than showing the strength of feeling that exists. I regard it as a cry for help, because right around the country there are struggling families gripped by a cost of living crisis, there are high streets and small businesses gripped by the cost of doing business crisis, and people are crying out for the change they were promised.

Most ordinary folk work hard, play by the rules, pay their taxes and expect certain public services to be there for them when they need them. Even when they become pensioners, they may well still be working. I hear time and again that pensioners want certainty. They have worked for their entire lives, they know how much money they have coming in and they need to know how much money is going out. They need to budget. When a shock comes along—whether something like the mini-Budget, a cut to the winter fuel payment or sky-high energy prices—they do not know what to do. They have far less capacity than other people to increase their income. Increasingly, pensioners have caring responsibilities, not just for their spouses but for their children, grandchildren or, even in some cases, their great-grandchildren. I take the petition as a cry for help.

As the Liberal Democrat spokesperson, I am incredibly proud that our policy when we were in government was to raise the personal allowance. That went through, and by April 2015, more than 3 million people had been taken out of paying income tax all together. It remains our priority to raise the tax-free personal allowance, as the best and fairest way of cutting tax when the public finances allow. And there is the rub, because the public finances are under enormous pressure and strain and, at the same time, there are very few signs of economic growth. We know that the public finances are in a terrible state in large part because of the mess left behind by the Conservative Government; in part, too, because of the growth-crushing Labour Budget, but also because of President Trump’s trade war. We have a toxic combination that means that people are seeing their seeing their taxes go up but not seeing services improve. It is leading to that cry for help.

As has been mentioned, the House of Commons Library briefing estimates that this measure alone would cost around £50 billion, and additional measures to equalise it with national insurance could cost £60 billion to £65 billion. If I remember correctly, I think the pandemic cost £40 billion, so this would be 1.5 pandemics, which is a staggering amount of money. None the less, we should not dismiss the call.

There are other things that we could do. We Liberal Democrats have said that the key to sorting out the public finances is to get more economic growth. We think that a key way of doing that is to improve our trading relationship with the European Union. Liberal Democrat research has shown that since the Brexit deal came into effect, small businesses have had to fill in 2 billion pieces of paper—enough paper to go round the world 15 times. The cost of that red tape is falling on to the shoulders of small businesses and, through them, their customers as well. Sorting out that trading relationship and ripping away that red tape will improve our economic growth.

We have also said that there are fairer ways of raising taxes. We have suggested that the Government look at increasing the digital services tax on the 20 largest online social media platforms and search engines. We have suggested that the Government look at increasing the remote gaming duty on those big gaming companies that made an enormous amount of money—billions of pounds in profits—during the pandemic, who we believe could pay a little bit more to help public services back on their feet.

We know that the Labour Government have gone some way to reforming capital gains tax. We have suggested alternative ways of reforming it to raise even more money than the Labour Government have raised, but also that we should raise that money from the 0.1% richest—the super-wealthy. There are fairer ways in which this Government could raise taxes from those with the broadest shoulders—those big corporations—to bring in billions of pounds in order to support people at the other end of the ladder.

There are other things that the Government could do. We have suggested that a home insulation scheme not only would be good for the planet by reducing carbon emissions, but would reduce people’s energy bills, meaning that the money that they do have would go further. Equally, by improving investment in our farming and reducing the cost of healthy, locally grown food, people would not have to spend so much of their money on food bills.

I thank Mr Frost again, and everybody who signed the petition. We as policymakers should take this challenge very seriously. We see it as a cry for help from those who are struggling the most at this incredibly difficult time. I urge the Minister again, as I have done many times in previous months, to look at some of the suggestions from the Liberal Democrats and to engage in those conversations about how we raise tax in a fairer way and support those who are struggling at this very difficult time.

16:53

[James Wild (North West Norfolk) (Con)]

In the last Westminster Hall debate that I took part in I think we were limited to 90-second speeches, so it is a pleasure to have the opportunity to expand at some considerable length this afternoon.

I thank the hon. Member for Sunderland Central (Lewis Atkinson) and the proposer Mr Frost for bringing forward this petition for debate on behalf of the 250,000 signatories, nearly 500 of whom come from my constituency. The petitioners have called on the Government to increase the income tax personal allowance to £20,000 to help low earners and pensioners. A bit of a spoiler alert: I think that they will be disappointed, because we have all seen the Government’s response that there are no such plans. It is worth noting that over the past 60 years, no Labour Government have left office with the tax burden lower than when they started. That is similar to employment; Labour Governments have always left the rate of unemployment higher than when they inherited it.

The tax burden as a percentage of GDP is forecast to hit its highest level since the second world war by the end of this Parliament. The cause of that pattern is philosophical: the belief that there is such a thing as Government money. In fact, there is only taxpayers’ money, and we Conservatives want people to keep more of it. As the shadow Chancellor, my right hon. Friend the Member for Central Devon (Sir Mel Stride), has said that we must drive taxes lower and do so in a responsible manner.

Other Members have referred to research by the House of Commons Library, that estimates a cost of between £50 billion to £65 billion—depending on the choices made on other parts of the allowance—to raise the personal allowance for everyone to £20,000, as the petition calls for. That is about what we spend on the defence budget. To introduce such a policy, people have to be very clear about the choices they are proposing: the spending that they would cut, the increases in other taxes they would make or, indeed, if they would fund this through borrowing. Anyone promising such an increase has to be honest about it, and set out their choices clearly and openly. The Conservatives will be doing that before the next general election.

The last Conservative Government increased the personal allowance significantly to benefit low earners—we made that a priority. It increased by 40% in real terms from 2010, from £6,475 to the £12,570 it is today. That change has benefitted millions of UK taxpayers. Of course, I also acknowledge that the last Government had to take the difficult decision to freeze that threshold until 2028. That decision was unwelcome and unpopular—I do not think it won us any votes—but it followed the hundreds of billions of pounds that we put in place to protect lives and livelihoods during the covid pandemic. Other parties were calling on us to spend even more, as I recall. That decision supported the poorest people the most.

Billions more were spent in response to the energy price shock—again, that money needs to be paid back. However, it is also the case that if the personal allowance had simply been uprated by inflation every year since 2010, it would only have been around £9,650 in 2023-24, which is lower than the current level.

At the last election, it was Labour that promised not to raise taxes on working people, which it broke in the October Budget with increases in national insurance. That was justified on the grounds of restoring financial responsibility and economic stability—referred to in the Government’s response to the petition. But it is hard to see that stability. The Government’s actions have led to a collapse in business confidence, and have seen taxes and borrowing rise at record levels. Meanwhile, growth—meant to be the overriding priority—has flatlined.

Last week’s cut in interest rates was welcome, but Labour’s policies are expected to mean that interest rates stay higher for longer than they would have done under our plans. Only last week, the National Institute of Economic and Social Research assessed that the Chancellor would miss her fiscal rules by £63 billion by the end of the forecast period. That came after the emergency Budget only a few weeks ago, that saw rushed cuts to welfare budgets, which colleagues across the House are concerned are untargeted. That was simply to spare the Chancellor the blushes of missing her own fiscal rules.

As a result of the Government’s actions, questions are being asked about the levels of personal taxation, particularly the personal allowance—the subject of the petition—which the Government pledge to unfreeze in 2028. The Chancellor made much of this at the autumn Budget, saying:

“From 2028-29, personal tax thresholds will be uprated in line with inflation once again. When it comes to choices on tax, this Government choose to protect working people every single time.” —[Official Report, 30 October 2024; Vol. 755, c. 821.]

I think we might disagree about the second part of that quote.

The statement about the policy was clear and unambiguous, and it maintained the position of the last Conservative Government—to lift that freeze in 2028. According to recent reports in the media, this is an issue that the Treasury is looking at as it tries to keep in the too-limited headroom that the Chancellor has in place. Will the Minister give an unambiguous commitment and restate the pledge to unfreeze the personal allowance from 2028? It does not go anywhere near as far as the petitioners would want, but it would at least be something.

The petition refers particularly to the position of pensioners; the hon. Member for Sunderland Central referred to that. Millions of people who are in receipt of only the state pension now face paying income tax on it. Of course, many with modest private provision already face that situation. Forecasts suggest an estimated 9 million pensioners will pay income tax on their state pension from April 2026. At the general election, we had a very clear policy: the triple lock plus commitment, which would have ensured that people relying on the state pension as their only source of income would never pay income tax on it. Labour refused to match our policy at that time; in government, it has maintained opposition to it.

I have tabled several parliamentary questions to him, but the Minister has been reluctant to give the Treasury estimates of the number of pensioners who receive only the state pension whom he expects to pay income tax and when they will do so. Perhaps today he will come clean with the figures that the Government must have about how many pensioners will have to pay income tax, when all they have in income is the state pension. I assume he is aware of those figures and assessed their impact when the Government were deciding to cut the winter fuel payments, again from very vulnerable people.

Towards the end of the last Parliament, I supported measures by the then Government to cut taxes for working people through reductions in employee national insurance, the last of which, last March, was worth £10 billion. We believe in people keeping more of their own money, and the Minister should give the signatories of this petition clear answers to the following questions. Will the Government stick to their promise to increase the personal allowance from 2028? Are the Government committed to not raising the rates of income tax and VAT in this Parliament? Will the Minister rule out any further increases in national insurance rates? I look forward to his response.

17:01

[The Exchequer Secretary to the Treasury (James Murray)]

It is a pleasure to speak with you in the Chair, Mr Stuart; this is our second debate together in the last few days. I extend my thanks, as many others have, to my hon. Friend the Member for Sunderland Central (Lewis Atkinson) for opening the debate, and I congratulate Mr Frost, who created the petition. I also thank all other hon. Members who have contributed to the debate for setting out their views.

I know that this petition has attracted almost 250,000 signatures, so, given the public interest in this topic, it is important that we are debating it. 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. 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.

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.

The Chancellor has taken the right decisions to get the UK’s public services back on their feet and to restore fiscal responsibility and economic stability. We will fight to protect those hard-won gains from those who want to see them squandered. In that critical context of fiscal responsibility, however, the Government are doing everything we can to support working people and pensioners. 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. We know that we will be able to keep taxes down only by delivering sustainable economic growth, which is why our plan for change and our trade deals are so important to make people better off.

Of course, an important context for this discussion is the autumn Budget, in which the Government reset public spending and put the public finances back on a sustainable path. The decisions in the Budget were underpinned by the most ambitious package ever to close the tax gap—the difference between what taxpayers owe and what is paid to His Majesty’s Revenue and Customs—alongside tax changes that make the tax system fairer and more sustainable while protecting people’s payslips. The Government are determined to close the tax gap as far as we can, because ensuring that everyone pays the tax they owe is critical for a well-functioning economy, for protecting revenue to fund our public services and for helping to keep taxes on working people as low as possible. In the spring statement, the Chancellor went further and faster to close the tax gap, raising an extra £1 billion in revenue for the public finances.

Turning to the personal allowance, it is worth beginning by recognising that the UK has one of the more generous personal tax allowances in the OECD, and the most generous in the G7. As we have heard in today’s debate, it was the previous Government who made the decision to freeze the personal allowance at its current level of £12,570 until April 2028. In the Budget last autumn, this Government decided not to extend that freeze and we kept the basic, higher and additional rates of income tax, employee national insurance contributions and VAT unchanged, meaning that people will keep more of their income. We also had to take a number of difficult but necessary decisions on tax, welfare and spending to restore economic stability, fix the public finances and support public services, given the situation that we inherited from the previous Government.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

I think the reason so many people signed the petition is that the plight of some of the poorest and most vulnerable in our society is on our collective conscience. I may have a helpful suggestion. I should declare an interest right away: my wife is disabled and I am her carer. I know of people who are carers and live in terror of an unexpected cost coming their way, such as the boiler breaking down in the north of Scotland or some horrifying bill throwing the finances out completely. I wonder whether it would be a kindly and humane step for the Government, or any Government, to provide for a mechanism whereby, when a nasty, surprise bill comes the way of a person caring for someone who is long-term sick or disabled, that bill could be offset against the tax payable by that person, or the married couple together.

[James Murray]

Of course, having a well-functioning welfare state is, in many ways, precisely about protecting people when they have unexpected shocks to their lives. I am not sure that the tax system is the best way to address that, but I think the hon. Gentleman’s broader point about ensuring that the state provides a safety net or cushion against unexpected shocks to people’s lives is an important principle.

The focus of today’s debate is very much on tax thresholds, particularly the personal allowance, so I will return to my comments on that. When we took office in July last year, no responsible Government could have let things carry on as they were. Likewise, no responsible Government could now raise the personal allowance to £20,000 at a cost of more than £50 billion, as such a move would put public services back on their knees or risk economic chaos that would push up inflation, mortgages and taxes.

The petition suggested that

“raising the personal allowance would lift many low earners out of benefits”.

We know that our benefits system is currently failing on all fronts; it is failing those who receive benefits, by not helping them to work where they can, and failing taxpayers more widely, through soaring costs to the public purse. We are fixing that by reforming the benefit system to make it more pro-work, while protecting those who cannot work. When people are in work, we want them to be better paid, which is why in April 2025 we increased the national living wage to £12.21 per hour, the third largest proportional increase since 2016, and that is expected to benefit over 3 million workers.

We have published the “Get Britain Working” White Paper, which sets out the Government’s plans to reform employment, health and skills support to tackle economic inactivity and support people into good work. Our plan to make work pay represents the biggest upgrade in employment rights in a generation, bringing the UK back into line internationally. It tackles poor working conditions and job security, and by making work more flexible and family friendly, it will support our wider programme across employment, health and skills policy to get Britain working.

[James Wild]

The Minister referred to the Employment Rights Bill. Has he seen the survey from the Britain Retail Consortium in which 70% of the businesses that were surveyed, which are major retailers that employ half a million people, said that the legislation would damage their business, and half said that it would make them less likely to take people on?

[James Murray]

Many employers recognise that having a productive, secure workforce who can take pride in their jobs and contribute to their fullest ability at work is important not just for the employees themselves but for the productivity of the businesses. That is why we want to see workers with employment rights that will be upgraded through our plan to make work pay, alongside, as I mentioned a few moments ago, a stronger national living wage and national minimum wage under this Government.

That focuses, however, on working people and their rights at work and their incomes. The petition also raised concerns about the state pension being subject to income tax. In 2025-26 the personal allowance will continue to exceed the basic and full new state pension. That means that pensioners whose sole income is the full new state pension or basic state pension without any increments will not pay any income tax. The state pension continues to be the foundation of support available to pensioners, backed by the Government’s commitment to the triple lock.

This year, over 12 million pensioners have benefited from a 4.1% increase to their basic or new state pension, which means that those on the full new state pension will get an additional £470. Over the course of this Parliament, the yearly amount of the full new state pension is currently projected to go up by around £1,900, based on the latest forecast from the Office for Budget Responsibility. The Government also support pensioners through a range of other means, including free eye tests, NHS prescriptions and bus passes. For pensioners who are eligible for means-tested support, we provide pension credit and housing benefit.

I recognise the substantial support for this petition. Hard-working people and pensioners who have worked hard all their lives want taxes to be as low as possible; I understand that. However, as we have set out today, we inherited a mess from the previous Government and have had to take tough choices to set us on a path to generate economic growth. Raising the personal allowance to £20,000 would undermine the work that the Chancellor has done to restore fiscal responsibility and economic stability, and it would slash the funding available for vital public services. This Government remain committed to keeping people’s taxes as low as possible while ensuring fiscal responsibility. Fiscal recklessness hits working people and pensioners the hardest. Parties promising to raise the personal allowance to £20,000 would have to explain how they would cut the NHS by a quarter, or why they want a rerun of the economic disaster we saw under Liz Truss.

We as a Government are determined to go further and faster to deliver our plan for change with its key goal of putting more money in people’s pockets by kick-starting economic growth. We will always keep taxes as low as possible while never putting security for families and pensioners at risk. I thank all hon. Members who have spoken.

17:12

[Lewis Atkinson]

I will be brief. I thank all hon. Members for their contributions. A debate on tax policy can be somewhat dry, but it is important to remember, as hon. Members on both sides of the House have reflected, that there are personal stories and circumstances behind all the signatories to this petition and the emails in our mailboxes. People are struggling to make ends meet and trying to do the best for their families and raise their standard of living. It is important to remember that.

On behalf of the Petitions Committee, I thank the Minister for his response to the debate and all the Members who attended. I particularly thank Mr Frost for instigating the petition and all the petitioners who signed it. We have had a short but important debate this afternoon on the nub of the key economic policy debates facing the country.

Question put and agreed to.

Resolved,

That this House has considered e-petition 702844 relating to the Income Tax Personal Allowance.

17:13

Sitting adjourned.