29th July 2026
Andy Burnham's suggestion that the Personal Allowance could be increased raises a much bigger question than simply whether people should pay less income tax.
It raises the question of whether the tax system should continue drawing more and more people into income tax as wages rise, only to collect relatively small amounts from some of them.
The standard Personal Allowance is currently £12,570 and has been frozen for several years. The Government has confirmed that the allowance and other income-tax thresholds are being maintained at their current levels through to 2030–31. That means that as wages increase, more people are gradually pulled into the tax system through what is known as fiscal drag.
Burnham's suggestion therefore deserves closer examination.
The simplest solution would be to increase the allowance for everyone
The most straightforward approach would be to increase the Personal Allowance from £12,570 to perhaps £15,000.
Someone earning £15,000 would then pay no income tax.
Someone earning £20,000 would pay tax only on £5,000.
Someone earning £50,000 would also benefit because the first £15,000 would be tax-free.
That simplicity has considerable advantages.
There would be one rule, easily understood by taxpayers and relatively straightforward for HMRC to administer.
But there is an obvious drawback.
The higher the allowance, the more expensive the tax cut becomes because higher earners benefit as well.
If the objective is specifically to help people on modest incomes, giving an identical increase to everybody is not necessarily the most cost-effective approach.
Could pensioners receive a higher allowance?
One possibility would be to introduce a higher Personal Allowance for people above State Pension age.
There is a historical precedent for this. The UK previously had age-related Personal Allowances, although these were eventually abolished for new recipients.
A higher allowance for pensioners could be relatively straightforward to administer because HMRC already knows a person's date of birth.
For example, the standard allowance could remain at £12,570 while pensioners received a higher threshold.
That could be particularly attractive politically because pensioners often have limited opportunities to increase their income when prices rise.
However, there is a potential problem.
Every additional category makes the tax system more complicated.
Once we start creating special allowances for pensioners, the next question becomes why parents, carers, disabled people or other groups shouldn't receive their own special allowance.
The tax system can quickly become a collection of exceptions rather than a simple set of rules.
What about people with children?
A higher allowance for parents is another possibility.
The Government could provide additional tax-free income linked to the number of dependent children.
But this becomes considerably more complicated.
What happens when both parents work?
Who gets the allowance?
What happens to separated parents?
What happens when a child reaches 18?
What about shared custody?
And should a low-income person without children receive less help than a higher-income parent?
These questions illustrate the problem.
The more precisely government tries to target a tax reduction, the more complicated the system tends to become.
Perhaps there is a better compromise
There is another option that could be much more interesting.
The Government could increase the Personal Allowance substantially but gradually withdraw some of the benefit from higher earners.
There is already a mechanism for doing something similar.
The existing Personal Allowance begins to disappear once adjusted net income exceeds £100,000. It is reduced by £1 for every £2 of income above that level.
So the machinery for tapering an allowance already exists.
That means the Government could potentially raise the allowance while ensuring that the full benefit is concentrated on lower and middle-income taxpayers.
It would also avoid having to create separate allowances for pensioners, parents, workers and other categories.
And this is where administrative cost becomes important
There is a point that is often missing from the political debate.
A person who becomes liable for a small amount of income tax does not necessarily have to complete a Self Assessment tax return.
An employee can normally have their tax collected automatically through PAYE.
Nevertheless, the more people who enter the income-tax system, the more tax calculations, PAYE adjustments, tax-code changes, repayments, queries and other administrative activity can potentially be generated.
The individual amounts may be small.
But multiply a few pounds or a few tens of pounds by hundreds of thousands or millions of taxpayers and the issue becomes more significant.
There is a basic principle here that governments sometimes overlook:
Collecting £50 of tax from somebody should not require anything approaching £50 of administrative effort.
The modern tax system is much more automated than it was in the past, but administration still has a cost.
And that cost is ultimately borne by taxpayers.
Fiscal drag is the bigger issue
The more important problem, however, is probably fiscal drag.
Imagine somebody whose wages increase from £12,500 to £15,000.
Their pay has risen, but that doesn't necessarily mean they are £2,500 better off in real terms.
If prices have also increased substantially, much of that additional income may simply compensate for the higher cost of living.
Yet because the Personal Allowance remains frozen, more of their income becomes taxable.
The same process continues further up the income scale.
Over time, the Government can collect substantially more income tax without increasing the headline tax rates.
That is one reason frozen thresholds are so attractive to Treasury ministers.
The tax rate doesn't have to rise if the tax-free threshold stays still while incomes rise.
There is a danger in constantly creating special allowances
It might initially sound attractive to have:
a higher allowance for pensioners;
another allowance for parents;
another for carers;
another for low-paid workers;
perhaps another for people living in high-cost areas.
But eventually the tax system becomes difficult for ordinary people to understand.
That can create its own problems.
People need to know how much they can earn before tax becomes payable.
They need to understand what happens when their circumstances change.
Employers need to operate payroll systems correctly.
And HMRC needs to maintain a system capable of handling millions of individual circumstances.
There is a strong argument that simplicity itself has an economic value.
So what might be the best answer?
A sensible compromise could be:
Raise the Personal Allowance from £12,570 towards £15,000, while leaving the higher-rate threshold broadly where it is and considering whether the benefit should taper at the very highest incomes.
That would have several advantages.
Lower earners would be protected from being dragged into income tax simply because their wages increased.
People on modest incomes would receive a meaningful tax reduction.
The system would remain relatively simple.
The number of people paying very small amounts of income tax could be reduced.
Higher earners would not necessarily receive the full benefit.
HMRC would not have to create a complicated collection of special allowances.
Most importantly, it would begin to reverse some of the effects of years of frozen thresholds.
Burnham's choice is therefore bigger than a tax cut
The debate shouldn't simply be about whether Andy Burnham wants to give taxpayers a bigger tax-free allowance.
The more interesting question is what sort of tax system we want.
Do we want a complicated system which attempts to tailor tax allowances to every individual's circumstances?
Or do we want a relatively simple system where people can easily understand how much of their income is tax-free?
There is also a question of whether it makes sense to bring ever more people into the income-tax system simply because inflation and wage increases have pushed them over an unchanged threshold.
For decades, governments have tended to concentrate on the amount of tax collected.
Perhaps they should also consider the cost of collecting it.
A higher Personal Allowance could therefore be about more than putting money back into people's pockets.
It could be about simplifying taxation, reducing fiscal drag and preventing the tax system from becoming unnecessarily complicated simply because wages have risen.
And there is a final irony.
If Burnham really wants to help people on modest incomes, he may not need a new tax benefit for every category of taxpayer.
Sometimes the simplest solution is also the most efficient:
Let people keep more of the money they earn before the tax system takes its share.