The personal allowance could get its first boost in five years.
The government is said to be considering raising the income threshold at which earners start paying tax from £12,570 to £15,570.
That would make the threshold just below what it would have been had it not been frozen in 2021.
A capital gains tax hike to pay for it?
Andy Burnham and Chancellor John Healey are reviewing a proposal to increase capital gains tax and end interest payments on Bank of England reserves, The Telegraph reported.
The plan was suggested by Labour donor and Ecotricity owner Dale Vince.
“If Labour wants to get the economy moving, it should put money into the pockets of people who will spend it,” Vince said.
Vince added: “Raising the personal allowance to £15,570 would give millions of people a meaningful boost, with the biggest benefit going to those on the lowest incomes.
“We can pay for it by making the tax system fairer – starting with capital gains and the billions we currently hand to banks in interest.”
A Treasury spokesperson said decisions on tax were a matter for the chancellor to set out at fiscal events, rather than “routinely commenting on rumour, speculation or proposals”.
A solution for pensioners?
It’s not just salaried Britons who would be affected should the policy be implemented.
It would solve a problem proving a headache for the Department for Work and Pensions: The state pension looks likely to surpass the tax-free personal allowance threshold in April.
The triple lock policy ensures the state pension rises by either 2.5%, inflation, or average wage growth, whichever is highest, each year.
Read more:
The health supplement ‘wild west’ – do we need any of them?
Inside ‘extreme’ movement that could help you retire early
Unemployed Britons are being interviewed by AI robots
Wage growth is likely to be highest this time around, having registered at 3.9% in provisional figures for the reporting period used in the triple lock calculation.
That’s equivalent to £479, taking your pension from £12,547.60 to £13,036.60, making £457 subject to income tax.
Retirees paying the basic tax rate (that is, your retirement income is below £50,270) would hand back £91.40 to the taxman.
But not so, if the personal allowance is increased to £15,570.
Tax rises expected elsewhere
The latest government borrowing figures underline the challenges facing the chancellor ahead of next month’s budget.
They showed the second-highest August borrowing on record.
The public sector spent £18.3bn more in August 2026 than it received in taxes and other income.
The Office for National Statistics said it took borrowing in the financial year to date £8.1bn above expectations set out by the Office for Budget Responsibility.
Analysis by Pantheon Macroeconomics pointed to a spending overshoot of £2.3bn during August alone. Debt interest payments were higher than expected.
Rising borrowing costs, on the back of the threat of surging inflation, are expected to force Healey to look for tax rises in his first budget.
Labour MPs have shown reluctance to support cuts in spending, such as in welfare, to meet spending commitments like rising defence demands.
Pantheon’s chief economist, Rob Wood, said: “We expect spending pressures to be a key point when the OBR produces its updated set of forecasts in October.
“We estimate that OBR will rule that the headroom available to Mr Healey has been reduced to £11.5bn in 2029/30, from £23.6bn largely because of higher debt interest payments driven by higher inflation.”
