For millions of people across the UK, the amount of income they can earn before paying tax has become a pressing issue. The current personal allowance — the threshold before income tax kicks in — has been frozen at £12,570 since 2021. But as inflation, energy bills, and everyday living costs have surged, campaigners and financial experts are calling for a major increase.
A new proposal suggests raising the personal allowance to £15,597. If implemented, this would mean more take-home pay for workers, retirees with small pensions, and those juggling multiple part-time jobs. But what does this really mean for households? Could this be the boost people need during a cost-of-living crisis?
Let’s explore what’s driving this new push, what it could mean for your finances, and why the debate around tax thresholds matters now more than ever.
What is the personal allowance?
The personal allowance is the amount of income you can earn in a tax year before you start paying income tax. In the UK, the standard allowance has been set at £12,570 since the 2021/22 tax year.
For example:
- If you earn £20,000, you only pay tax on £7,430.
- If you earn less than £12,570, you pay no income tax at all.
While the concept is simple, the freezing of this allowance has created a phenomenon known as “fiscal drag.” This means that even though your wages may rise slightly each year, more of your income ends up being taxed because the threshold isn’t moving with inflation.
Why campaigners want it raised to £15,597
The figure £15,597 hasn’t been chosen at random. Supporters argue that this figure better reflects the reality of rising living costs in the UK today. According to recent economic data, average household essentials — such as rent, food, fuel, and energy — now cost thousands more annually compared to just three years ago.
Raising the allowance to £15,597 would effectively shield more of people’s income from tax, leaving them with more disposable cash to cover essentials. For a worker on modest wages, this could mean hundreds of pounds more each year in their pocket.
For example, someone earning £25,000 annually could save around £600 in tax if the allowance were raised, compared with the current frozen level.
Who would benefit the most?
This change would benefit a wide group of people across the UK:
- Low to middle-income workers
People working full-time but earning under £30,000 would see the biggest boost, as a larger share of their income would remain tax-free. - Part-time workers
Many part-time workers, especially women balancing childcare, are stuck just above the £12,570 threshold. Raising it would allow them to keep more of their earnings. - Pensioners with modest incomes
Pensioners receiving state and small private pensions often find themselves paying income tax on relatively low incomes. This change could ease that burden. - Young workers and students
Those in entry-level jobs or juggling part-time work alongside studies would also benefit from the increased allowance.
The impact on household finances
For households already feeling the pinch, this kind of tax relief could make a tangible difference. More take-home pay could help cover:
- Rising energy bills during winter months
- Higher mortgage repayments due to interest rate hikes
- School-related costs such as uniforms and transport
- Everyday food shopping, which has climbed significantly in price
Even a few hundred pounds extra a year can ease the financial strain, particularly for families with children or single-income households.
The fiscal drag problem
One of the strongest arguments for raising the personal allowance is the issue of fiscal drag.
When the allowance is frozen, but wages rise with inflation, more and more people move into higher tax bands even if they aren’t actually any “richer” in real terms. This results in a silent tax increase, where workers pay a bigger slice of their income in tax without any official announcement of a tax rise.
According to recent Treasury figures, millions of people have already been pulled into paying tax for the first time since the freeze began, while many middle earners are edging closer to the higher-rate 40% tax band.
By lifting the allowance to £15,597, campaigners argue, the government could reverse some of this drag and give workers a fairer deal.
Arguments against the rise
Of course, not everyone supports the idea of raising the personal allowance. Critics highlight several concerns:
- Cost to the Treasury: Increasing the allowance would mean billions in lost tax revenue. This could limit government spending on public services such as the NHS, schools, and social care.
- Uneven benefit: Some economists argue that raising the allowance helps higher earners more than the poorest, since those who earn less than the threshold gain nothing. They suggest targeted support for low-income households might be more effective.
- Risk of inflationary pressure: More disposable income in circulation could, in theory, fuel inflation if demand for goods and services rises too quickly.
Alternative ideas on the table
While raising the personal allowance is one proposal, it’s not the only idea being discussed. Other suggestions include:
- Reintroducing a lower starting rate of income tax for people earning just above the threshold.
- Raising tax credits or Universal Credit allowances for low-income families.
- Adjusting pensioner tax allowances separately to protect those on fixed retirement incomes.
Each of these options comes with its own pros and cons, but the central issue remains the same: how to give households meaningful relief during the cost-of-living crisis.
How much difference could it really make?
Let’s break it down with a simple example.
- Under the current allowance of £12,570, someone earning £25,000 pays tax on £12,430.
- If the allowance were raised to £15,597, they would only pay tax on £9,403.
That’s £3,027 less income taxed. At 20%, this means a saving of around £605 a year.
While that might not sound transformative, for many households it could cover:
- A month’s worth of energy bills
- Several weeks of grocery shopping
- A portion of annual council tax
In other words, it’s not life-changing wealth, but it’s meaningful breathing room.
Public opinion and political pressure
Unsurprisingly, public opinion is strongly in favour of easing the tax burden. Polls consistently show that a majority of UK workers believe the personal allowance should be raised in line with inflation, if not higher.
As the next general election approaches, political parties will likely use this debate to win favour with voters. Whether or not the £15,597 figure becomes reality, it is clear that tax thresholds will remain a hot topic in UK politics.
Could this happen soon?
The timeline for any such change depends on government decisions and budget announcements. While no official confirmation has been given, pressure is mounting. With households still struggling despite falling inflation rates, there is a growing expectation that the Chancellor will have to act.
The question is whether the government will prioritise tax cuts like this, or focus instead on direct spending in areas such as the NHS or public sector wages.
Final thoughts
The push to increase the personal allowance to £15,597 highlights the tension between government revenue needs and household financial realities. For millions of people, such a change would represent real, noticeable relief at a time when every pound counts.
Whether or not this proposal becomes law, it shines a light on how frozen thresholds quietly squeeze household budgets. For UK workers, pensioners, and families, the outcome of this debate could make a big difference in the years ahead.
As living costs continue to rise, the demand for fairer tax treatment isn’t going away. The pressure on policymakers is only set to grow.