The UK Government is facing growing pressure to increase the personal tax allowance under Rachel Reeves’ tax plan, as a new petition calls for a rise from £12,570 to £20,000. The proposal aims to help low-income individuals and pensioners retain more of their income, amid concerns that many retirees will be pushed into paying tax under Rachel Reeves’ fiscal policies.
Petition Calls for a Higher Personal Allowance
An online petition, launched by Alan David Frost, argues that it is unfair for pensioners to be taxed on their State Pension when it exceeds the personal allowance threshold. The petition states that increasing the allowance would enable low earners to move off benefits while allowing pensioners to retain more of their income.
Since its launch, the petition has gathered 12,000 signatures, prompting a mandatory government response. If it reaches 100,000 signatures, it could be considered for debate in Parliament.
Current Tax Thresholds and Their Impact on Pensioners
Under existing policies, the Personal Allowance will remain at £12,570 until at least 2028/29. The full New State Pension for 2024/25 is set at £11,502, increasing to £11,973 in 2025/26. This leaves pensioners with a narrow margin before exceeding the tax threshold—£1,068 in 2024/25, shrinking to £597 in 2025/26.
For those whose only income is the State Pension, no tax will be due. However, additional income from employment, private pensions, or workplace pensions may push many pensioners above the personal allowance threshold, requiring them to pay income tax.
Here’s how pensioners might be affected:
- Pensioners earning only the full New State Pension will remain below the tax threshold.
- Those with additional income from private or workplace pensions may find themselves taxed on the amount exceeding £12,570.
- Individuals earning above the threshold will pay 19% (England) or 20% (Scotland) on the excess amount.
- Tax deductions are typically made through PAYE, but some retirees may receive a separate bill from HMRC.
The tax plan keeps the Personal Allowance frozen, more pensioners are likely to be drawn into the tax system in the coming years, raising concerns about the financial strain on retirees with modest additional income.
Debate Over Pensioner Taxation
The petition follows recent calls from Liberal Democrat MP Ben Maguire, who urged the Chancellor to consider raising the tax allowance for those above State Pension age to £15,000. However, in a written response, Treasury Minister James Murray MP reaffirmed the Labour Government’s commitment to keeping taxes as low as possible for pensioners, while ensuring fiscal responsibility.
Despite this, critics argue that the current system disproportionately affects retirees. The petition emphasizes that 62% of State Pension recipients—approximately 8 million retirees—already pay tax on their income.
Key Facts and Missing Figures
While the petition has sparked debate, several key figures and aspects of the issue are not always highlighted in discussions:
- Growth in the number of taxable pensioners:
- In 2010, fewer than 40% of pensioners were subject to income tax. Today, that number has risen to 62%.
- If the Personal Allowance remains frozen until 2028/29, more pensioners will gradually be drawn into paying tax.
- Financial impact of raising the tax threshold:
- Raising the Personal Allowance to £15,000 or £20,000 would reduce tax revenue.
- The cost to the Treasury in lost tax income is unclear—would this be offset by increased consumer spending by pensioners?
- International comparisons:
- How does the UK compare to France or Germany, where pension income is taxed differently or in some cases partially exempt?
- Some countries apply higher tax allowances for retirees to reflect their fixed incomes.
- Regional impact within the UK:
- Are pensioners in some regions more affected than others due to differences in income levels or living costs?
- Could retirees in London or the South East be hit harder due to higher costs of living and additional pension income sources?
These factors highlight the growing concerns surrounding Rachel Reeves’ tax plan, as pensioners and policymakers debate whether the current system fairly balances government revenues with the financial security of retirees.
Future Implications and Government Response
The government has yet to indicate any plans to raise the personal allowance. Tax owed on additional income is collected through PAYE for those with workplace pensions or employment, while others may receive a tax bill from HMRC each year.
With growing public support for reform, the issue remains a point of debate. The Department for Work and Pensions (DWP) is set to publish an updated list of State Pension and benefit payments, with adjustments expected across various pension elements.
For individuals seeking clarity on their future State Pension payments, the government offers an online forecasting tool on GOV.UK.
