Burnham Pulls Back on Suggestion to Increase Tax-Free Personal Allowance
Andy Burnham has pulled back from suggestions about increasing the tax-free personal allowance. The £12,570 threshold has been frozen since 2021, resulting in more people being dragged into paying tax as earnings increase. Burnham told the Times over the weekend that the frustration about the personal allowance
he had heard while campaigning in the Makerfield by-election was lodged in my mind. The prime minister then told reporters on Monday that all of this will be looked at
in the next budget but conceded any change would be expensive and difficult given the financial circumstances in which we find ourselves. Those close to Burnham have since told BBC News that any changes to the personal allowance are not part of his initial plan to tackle the cost of living.
Makerfield By-Election Shaped Burnham’s Leadership
It comes after Burnham told his first cabinet meeting: We've got to show fiscal discipline. We've got to show that our commitment to the fiscal rules is real and we're prepared to make difficult decisions in relation to that.
Burnham has committed to Labour’s 2024 manifesto, which included a promise not to increase the basic, higher, or additional rates of income tax. That would rule out increasing the top rate of income tax paid by higher earners to offset the cost of lifting the personal allowance. The Institute for Fiscal Studies has estimated that unfreezing the threshold could end up costing £8.5-9bn a year.
£12,570 Tax-Free Allowance Frozen Since 2021
Burnham said on Monday that he was just kind of showing I have visibility of the issue and the impact it's had.
He told reporters it would be „looked atin the Budget, but added:
Obviously it’s difficult, given the financial circumstances in which we find ourselves.“ Government sources told the Telegraph on Tuesday that there were „no plans“ to announce any changes to the £12,570 personal allowance in the short term.
Labour’s 2024 Manifesto Pledge on Tax Rates
Burnham’s decision to forgo increasing the personal allowance reflects broader fiscal constraints facing the new Labour government. The prime minister, who became leader of the Labour Party after winning the Makerfield by-election, has prioritized fiscal discipline as a cornerstone of his administration. His victory in the by-election, engineered by the resignation of ally Josh Simons, demonstrated his ability to counter the rise of Reform UK in northern England. Burnham’s leadership has been framed as a response to Labour’s poor local election results in May, which were seen as a warning for the party’s prospects in the next general election.
Despite his focus on fiscal restraint, Burnham has faced pressure to address the financial strain on households. The £12,570 threshold, frozen since 2021, has led to a growing number of low- and middle-income earners paying taxes as wages rise. However, Burnham’s commitment to the 2024 manifesto’s pledge to freeze income tax rates limits his options. The IFS’s estimate of £8.5-9bn in annual costs underscores the financial challenges of reversing the freeze, a reality that has led government sources to confirm no short-term changes to the threshold.
Burnham’s approach aligns with his broader emphasis on fiscal discipline,
a theme he highlighted in his first cabinet meeting. This stance contrasts with his earlier remarks during the by-election campaign, where he acknowledged the „frustrationover the personal allowance. The prime minister's comments to reporters on Monday, while acknowledging the issue, emphasized the difficulty of implementing changes amid financial circumstances that he described as
difficult.“ This balancing act reflects the challenges of managing public expectations while adhering to fiscal constraints.
The decision to avoid increasing the personal allowance also has implications for Labour’s policy agenda. Burnham’s 2024 manifesto included pledges to boost social housing construction, reindustrialization and bringing essential utilities under greater public control—initiatives that require significant funding. With tax increases ruled out, the government must navigate these priorities within existing fiscal frameworks. Analysts like Simon Kaye of the think tank Re:State have noted the systemic challenges facing the government, including a struggling NHS, social care system, and economy. People have this underlying sense that the state isn’t working very well right now,
Kaye said, highlighting the broader context of public dissatisfaction.
As Burnham takes office, the focus remains on managing economic and social pressures while adhering to fiscal rules. The personal allowance issue, though deferred, remains a key point of contention. For now, the government has opted for caution, with no immediate plans to alter the £12,570 threshold. This decision underscores the delicate tightrope walk between addressing public concerns and maintaining fiscal responsibility in a challenging economic climate.
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