Raise income-tax thresholds

Scale of change

The costable scenario uses Reform's 2024 threshold detail because the live page only gives a broad tax-cut pledge. The personal allowance rises from GBP 12,570 to GBP 20,000; the higher-rate threshold rises to GBP 70,000.

• Personal allowance rises by GBP 7,430.
• Higher-rate threshold rises by GBP 19,730.
• Reform says 7m people leave income tax.

Core trade-offs

Taxpayers keep more pay, especially middle earners, but the Exchequer loses a large recurring revenue stream. Labour-supply gains may offset only a fraction.

• Direct gain goes to income-tax payers.
• Largest cash gains skew above low earners.
• Borrowing or spending cuts must fill the gap.

Illustrative fiscal impact

+GBP 75.0bn to +GBP 130.0bn. Central estimate: +GBP 95.0bn.

• Positive numbers mean public-finance pressure; negative numbers mean Exchequer savings.
• GBP 7,430 PA rise is the main scale marker.
• Gross costs and receipt offsets are separated in methodology.
• Behaviour and pass-through widen the range.
• This is not an official costing.

Economic impact by 2027-28

• Jobs: Work incentives rise for some groups, but deficit-funded cuts may raise rates or reduce demand elsewhere.
• Wages: Net pay rises for taxpayers; non-taxpayers gain little directly.
• Prices: If borrowing-funded, demand pressure may lift inflation and interest-rate risk.
• GDP / productivity: Could raise labour supply modestly, but unfunded scale risks crowding out and instability.

Assessment

This is one of the largest recurring tax cuts in the package. It benefits taxpayers and may improve some work incentives, but the revenue loss is far too large to treat as self-financing. Without credible offsets, the likely macroeconomic effect is higher borrowing, rates risk and service pressure.

Confidence: Medium. HMRC ready-reckoners provide useful anchors, but large threshold moves are non-linear and behavioural offsets are uncertain.

Main risks

• Fiscal gap: The annual cost could exceed most departmental budgets if not matched by durable savings.
• Distributional skew: Lowest earners below the allowance gain little, while middle and higher earners gain more cash.
• Rate pressure: A large unfunded cut could raise borrowing costs and crowd out private investment.

Safeguards

• Publish an HMRC distributional table before implementation.
• Phase thresholds only after identified savings are banked.
• Pair with a poverty-focused measure for non-taxpayers.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology: Raise income-tax thresholds Internal - PolicyLens, 2026
• Tax by Design: The Mirrlees Review Academic review - Mirrlees and review team, IFS and Oxford University Press, 2011
• The Elasticity of Taxable Income Academic article - Saez, Slemrod and Giertz, Journal of Economic Literature, 2012
• Direct effects of illustrative tax changes Official tax data - HM Revenue and Customs, 2026
• Our Contract with You Party policy document - Reform UK, 2024
• Income tax: rates and allowances Parliamentary briefing - House of Commons Library, 2026
• Reform UK manifesto response Think-tank analysis - Institute for Fiscal Studies, 2024
• Reform UK tax pledges costing note Tax analysis - Tax Policy Associates, 2024
• Our Policies Party policy source - Reform UK, 2026

Other Reform UK policies

• Cut household energy taxes
• Cut fuel duty by 20p
• Cut stamp duty below GBP 750,000
• Raise inheritance-tax threshold to GBP 2m
• Cut corporation tax to 15%
• Raise VAT threshold to GBP 150,000
• Abolish IR35 rules
• Replace some high-street business rates