New PM Andy Burnham to Review Frozen £12,570 Tax Allowance — What It Could Mean for Your Pay

Andy Burnham was confirmed as prime minister this week, and within his first days in office he signalled that the frozen personal tax allowance could be reviewed ahead of his first Budget in the autumn. For millions of taxpayers, that single number — currently £12,570 — determines exactly how much of every pay packet is taxed.

Why the personal allowance matters so much

The personal allowance is the amount you can earn each year before Income Tax kicks in. It has been frozen at £12,570 since 2021, and both Income Tax and National Insurance thresholds are currently locked until April 2031. Freezing a threshold while wages rise is known as "fiscal drag" — as pay increases, more of it falls into taxable territory even though the tax rate itself hasn't changed, quietly raising billions for the Treasury without a headline tax rise.

Burnham told The Times that the personal allowance was "the thing I heard the most on the doorsteps" while canvassing, and has now confirmed he will be "looking at" the threshold before the autumn Budget, according to IBTimes UK.

What changed this week

Burnham became prime minister after Labour's leadership shift, and one of his first acts was appointing John Healey — previously defence secretary — as the new chancellor. According to reporting picked up by Yahoo Finance UK, the government says it will stick to existing fiscal rules while using the borrowing flexibility they allow, meaning any allowance increase would likely need to be funded by cuts elsewhere, extra borrowing, or other tax changes.

What it could mean for your pay packet

Raising the personal allowance even modestly would benefit almost every taxpayer, since it lifts the point at which tax starts for everyone, not just higher earners. But reversing five years of freezes is expensive — every £100 added to the allowance costs the Treasury roughly £1 billion a year in lost revenue, based on historic Treasury costings of similar changes. That means any move is more likely to be a partial uprating than a return to inflation-linked increases straight away.

It's also worth noting this is a signal of intent, not a policy. Nothing changes until a Budget is actually delivered, and previous chancellors have floated ideas in interviews that didn't survive contact with the Treasury's own sums.

What to do now

• Don't rely on it. Continue budgeting on the basis that your current allowance and tax code stay the same until an actual Budget confirms otherwise.
• Check your tax code is correct now via your personal tax account — an incorrect code costs you money regardless of what happens to the threshold.
• Watch the autumn Budget date. No date has been confirmed yet; HM Treasury typically announces this several weeks in advance.
• If you're near a threshold boundary (such as the £50,270 higher-rate band or the £100,000 personal allowance taper), keep an eye on announcements, since any allowance change could shift where those bands sit too.

How the UK compares internationally

The UK's frozen-threshold approach is unusual among comparable economies. In the US, federal tax brackets and the standard deduction are adjusted annually for inflation by the IRS. Australia's tax-free threshold has also seen periodic uplifts tied to budget policy rather than a multi-year freeze. The EU has no single system, but several member states, including Germany, index income tax bands to inflation by law.

Key Numbers

• £12,570 — current personal allowance, frozen since 2021
• April 2031 — when the current threshold freeze is due to end
• £100 billion+ — the UK's annual debt-interest bill, a key constraint on any tax giveaway

Sources

• Yahoo Finance UK: How much extra money would Britons get if Andy Burnham raises the tax-free personal allowance?
• IBTimes UK: Andy Burnham Promises Tax Relief and Cost-of-Living Focus
• GOV.UK: Income Tax rates and Personal Allowances
• Bloomberg: FTSE 100 Live — Burnham, Healey, gilts

Educational content only — not financial advice.