Prime Minister Andy Burnham has withdrawn from recent suggestions to increase the tax-free personal allowance, a threshold that has remained frozen at £12,570 since 2021. This freeze has led to more individuals paying income tax as their earnings rise.
Burnham had previously indicated that the public's frustration over the frozen personal allowance was a significant concern. However, he acknowledged on Monday that while the matter would be "looked at" in the upcoming budget, any changes would be financially costly and "difficult given the financial circumstances in which we find ourselves."
Sources close to Burnham have clarified that altering the personal allowance is not part of his initial strategy to address the cost of living crisis. In his first cabinet meeting, Burnham emphasized the need for "fiscal discipline" and a commitment to "fiscal rules," stating readiness to make "difficult decisions."
The Prime Minister is bound by Labour's 2024 manifesto, which includes a pledge not to raise the basic, higher, or additional rates of income tax. This commitment would preclude increasing the top rate of income tax on higher earners to fund an allowance increase.
The Institute for Fiscal Studies has estimated that unfreezing the personal allowance could cost approximately £8.5 billion to £9 billion annually. Burnham stated on Monday that his earlier comments were intended to show awareness of the issue and its impact on the public.