Amid ongoing economic challenges, a bold proposal is gaining traction across the United Kingdom: raising the Personal Allowance from its current £12,570 to an unprecedented £45,000. This dramatic shift would fundamentally transform the British tax landscape, potentially freeing millions of workers from income tax altogether. But is this ambitious plan economically viable, and who stands to benefit most?
Understanding the Personal Allowance
The Personal Allowance is the amount of income UK residents can earn annually without paying income tax. For the 2025/26 tax year, this threshold remains at £12,570, unchanged since 2021. Any earnings above this amount are subject to taxation according to the UK’s progressive tax system.
Currently, if your income exceeds £100,000, your Allowance is reduced by £1 for every £2 earned over that threshold. This means those earning £125,140 or more have no Personal Allowance at all.
The Current Tax Landscape
The UK tax system operates on a series of bands that determine how much tax you pay on different portions of your income. For most UK residents (England, Wales, and Northern Ireland), the current structure looks like this:
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scotland has a slightly different system with more bands and varying rates, reflecting its devolved tax powers.
Why £45,000 Is Being Proposed
Supporters of the £45,000 Personal Allowance cite several compelling reasons for this dramatic increase:
- Cost of Living Crisis: With inflation reaching record levels in recent years, basic living expenses have soared while wages have largely stagnated. Essential costs like housing, food, and energy now consume a much larger portion of the average worker’s income.
- Economic Stimulus: Putting more money directly into workers’ pockets could boost consumer spending, potentially stimulating economic growth across various sectors.
- Tax Fairness: The current system is often criticized for placing a disproportionate burden on middle and low-income earners who lack access to sophisticated tax planning options available to wealthier individuals.
- Simplification: A higher threshold would remove millions from the tax system entirely, potentially reducing administrative costs and complexity.
Who Would Benefit?
A £45,000 Personal Allowance would create winners across various demographic groups:
| Income Group | Current System | With £45,000 Allowance | Annual Savings |
|---|---|---|---|
| £15,000 | Pays £486 tax | Pays £0 tax | £486 |
| £25,000 | Pays £2,486 tax | Pays £0 tax | £2,486 |
| £35,000 | Pays £4,486 tax | Pays £0 tax | £4,486 |
| £45,000 | Pays £6,486 tax | Pays £0 tax | £6,486 |
| £55,000 | Pays £8,486 tax | Pays £2,000 tax | £6,486 |
| £100,000 | Pays £27,432 tax | Pays £11,000 tax | £16,432 |
The greatest proportional benefit would go to those earning just under £45,000, who would be completely removed from income tax. However, even higher earners would see substantial savings as their first £45,000 of income would become tax-free.
Economic Implications
While the benefits to individual taxpayers are clear, the broader economic implications require careful consideration:
Potential Benefits:
- Increased Consumer Spending: With more disposable income, households might increase spending, benefiting local businesses.
- Reduced Reliance on Benefits: Higher take-home pay could reduce dependency on various government support schemes.
- Job Creation: Increased consumer spending could stimulate job growth in various sectors.
Potential Challenges:
- Government Revenue Gap: The significant reduction in tax revenue would require either spending cuts or alternative revenue sources.
- Inflationary Pressure: A sudden increase in consumer spending power might contribute to inflation.
- Regional Disparities: The impact would vary significantly across regions due to wage differences.
Is It Financially Viable?
The most significant obstacle to implementing a £45,000 Personal Allowance is the substantial reduction in government revenue. The Treasury would need to find ways to offset this loss, potentially through:
- Higher taxes elsewhere: This could include increases in other taxes such as Capital Gains Tax, Corporation Tax, or VAT.
- Spending reductions: Cutting public services or investment in infrastructure.
- Economic growth: Hoping that increased economic activity generates offsetting revenue through other means.
- Borrowing: Increasing national debt to cover the shortfall.
Current Government Position
As of May 2025, the UK government hasn’t officially endorsed the £45,000 proposal. The most recent official information confirms the Personal Allowance remains frozen at £12,570 until April 2028, as part of fiscal measures announced in previous budgets.
The House of Commons Library’s report on direct taxes for 2025/26 confirms that “the standard Personal Allowance is £12,570,” with no indication of imminent changes to this threshold.
Public Opinion
Public support for raising the Personal Allowance appears strong across political lines. Many see it as a direct and transparent way to address cost-of-living pressures while rewarding work.
Critics, however, worry about the potentially regressive nature of such a high threshold. They argue that while everyone would benefit from a higher allowance, those with higher incomes would receive greater absolute benefits, potentially widening wealth inequality.
Alternative Approaches
Some economists suggest more targeted approaches to tax relief:
- Graduated increases: Raising the Personal Allowance incrementally over several years.
- Targeted relief: Increasing allowances only for lower and middle-income earners.
- Sector-specific support: Tax breaks for essential workers or industries under particular pressure.
What This Means For You
For the typical UK taxpayer, the potential impact of raising the Personal Allowance to £45,000 would be substantial:
- A single person earning £30,000 would save approximately £3,486 annually.
- A two-income household with each partner earning £40,000 would save approximately £8,972 combined.
- Self-employed individuals would see similar benefits, though their overall tax situation might be more complex.
Clarifications
1. Would the £45,000 Personal Allowance apply across the entire UK?
Personal Allowance rules generally apply UK-wide, though Scotland has some tax-setting powers and could potentially implement variations.
2. How would the proposed change affect pensioners?
Pensioners with income below £45,000 would pay no income tax on their pension income, potentially significantly improving their financial situation.
3. When might such a change be implemented if approved?
Major tax changes typically coincide with the beginning of the tax year (April 6), but implementation would depend on when and if legislation is passed.
Further Information
For current official information on Personal Allowance and income tax rates, visit:
- GOV.UK Income Tax Rates and Personal Allowances
- Marriage Allowance information
- Direct taxes: Rates and allowances
While the £45,000 Personal Allowance remains a proposal rather than government policy, the discussion highlights growing concerns about tax burden and cost of living in post-pandemic Britain. As inflation continues to challenge household budgets, pressure for meaningful tax reform is likely to remain a significant political issue throughout 2025 and beyond.
Katherine Johnson is a passionate writer with a keen interest in storytelling, content creation, and creative expression. She enjoys exploring diverse topics and crafting engaging narratives that captivate readers.