PolicyLens

Methodology note

Raise income-tax thresholds: calculation note

Assumptions behind the Raise income-tax thresholds scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Raise income-tax thresholds

Central fiscal result

+GBP 95.0bn - Net fiscal impact in 2027-28

Low case: +GBP 75.0bn. High case: +GBP 130.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • Personal allowance rises from GBP 12,570 to GBP 20,000.
  • Higher-rate threshold rises from GBP 50,270 to GBP 70,000.
  • The live policy page gives broad tax-cut language.
  • No offsetting spending cuts are included.

Affected population

  • Affected units are income-tax payers and adults moving out of tax.
  • Reform claims about 7m people leave income tax.
  • Higher-rate taxpayers gain from the GBP 70,000 threshold.
  • Non-taxpayers receive no direct tax benefit.

Gross impact

  • Personal allowance rise is GBP 7,430 per eligible taxpayer.
  • HMRC GBP 100 allowance ready-reckoners imply a very large cost.
  • Basic-rate-limit ready-reckoners anchor the higher-threshold cost.
  • Central case uses GBP 95bn after behavioural caution.

Fiscal build-up, central case

  • Personal allowance revenue loss: +GBP 70.0bn
  • Higher-rate threshold revenue loss: +GBP 30.0bn
  • Labour-supply and taxable-income offset: -GBP 5.0bn
  • Administration and transition: +GBP 0.0bn

Central net impact: +GBP 95.0bn in 2027-28.

Behaviour and pass-through

  • Low case assumes stronger work and reporting responses, cutting the cost to GBP 75bn.
  • Central case assumes only modest behavioural recovery against the mechanical cost.
  • High case allows weaker receipts and fiscal-drag reversal, raising cost to GBP 130bn.
  • Extra demand is not counted as a reliable self-financing channel.

Phasing

  • 2026-27: +GBP 5.0bn. Preparation or partial implementation.
  • 2027-28: +GBP 95.0bn. Main scenario year.
  • 2028-29: +GBP 100.0bn. Behaviour and pass-through develop.
  • 2029-30: +GBP 105.0bn. Steady-state uncertainty persists.

Main source groups

  • S1: Reform Contract gives GBP 20,000 and GBP 70,000 thresholds.
  • S2: HMRC ready-reckoners anchor allowance and basic-rate-limit costs.
  • S3: Commons Library gives current income-tax thresholds.
  • S4: IFS and Tax Policy Associates provide external scale checks.
  • S5: Mirrlees and taxable-income evidence inform behavioural and tax-base caution.