Income Tax: Personal Allowance

James Wild Excerpts

Monday 12th May 2025 Westminster Hall

[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.

--- Later in debate ---

[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.