Millions of UK workers are paying more income tax every year without the government ever raising the rate—because the tax-free personal allowance has been frozen since 2021. This policy, known as fiscal drag, quietly pulls more people into tax and pushes others into higher brackets as wages rise. Now, new Prime Minister Andy Burnham is facing calls to unfreeze the £12,570 threshold, but he says it’s too expensive—for now.
The personal allowance is the amount of income you can earn before you start paying income tax. Since 2021, it has been stuck at £12,570. That means as your salary goes up with inflation or promotions, a bigger slice of your income becomes taxable. It’s not a tax rise in name, but it acts like one. The freeze was originally introduced by the Conservative government as a temporary measure to help pay for pandemic spending, but it has been extended year after year. The Institute for Fiscal Studies estimates that unfreezing the threshold would cost the Treasury between £8.5 billion and £9 billion a year.
“Explains the freeze on UK's tax-free personal allowance, how it raises taxes without rate hikes, and why change is uncertain.”
Andy Burnham, who became Prime Minister in July 2026, has acknowledged the “frustration about the personal allowance” he heard while campaigning. He told reporters that “all of this will be looked at” in the next Budget, but stressed that any change would be “difficult given the financial circumstances.” Sources close to Burnham have confirmed that adjusting the allowance is not part of his immediate cost-of-living plan. He has also committed to Labour’s 2024 manifesto promise not to increase the basic, higher, or additional rates of income tax, which rules out offsetting the cost by raising top rates.
For UK readers, the freeze has a direct impact on household budgets. As wages rise—even modestly—more of your income is taxed. This is especially painful during a cost-of-living crisis, when every pound counts. The freeze also drags lower earners into the tax system for the first time. For example, someone whose pay has increased from £12,500 to £13,000 now pays tax on £430 of that income. The longer the freeze continues, the more people are affected.
Q: What is the personal tax allowance? It is the amount of income you can earn each year before you pay any income tax. For the 2026/27 tax year, it is £12,570. If you earn less than that, you pay no income tax. If you earn more, you pay tax only on the amount above the threshold.
Q: Why has the allowance been frozen since 2021? The freeze was introduced as a temporary measure to help the government recover from the huge borrowing during the COVID-19 pandemic. By not raising the allowance in line with inflation or wage growth, the Treasury collects more tax without needing to announce a rate increase. It is often called a “stealth tax” because it happens automatically.
Q: Will the allowance be unfrozen soon? Prime Minister Andy Burnham has said the matter will be “looked at” in the next Budget, but he has made no commitment. He has called for “fiscal discipline” and noted that unfreezing would cost up to £9 billion a year. Any change is unlikely before the Budget, which is expected later in 2026.
The immediate question is whether Burnham’s government will prioritise tax relief for lower and middle earners or stick to its fiscal rules. The Chancellor will set out the Budget later this year, and that is when we will learn whether the personal allowance freeze will finally end—or continue to quietly tax millions more.