Income Tax: Personal Allowance

Wendy Morton Excerpts

Monday 12th May 2025 Westminster Hall

[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.