UK Personal Allowance History: From £6,475 (2010) to £12,570 (2026)

Introduction: A Tale of Two Policies

The history of the UK Personal Allowance (PA) over the past 16 years falls neatly into two distinct chapters. Between 2010 and 2021, the PA increased almost every year — more than doubling in cash terms and representing one of the most significant income tax reductions in a generation. Since 2021, however, the PA has been completely frozen, and with inflation running at historically elevated levels in the intervening years, the real-terms value has declined sharply.

Understanding this history matters for anyone trying to make sense of their current tax position, their payslip, and the political choices that have shaped the modern income tax system.

The Full Personal Allowance Timeline: 2010 to 2026

Chapter One: The Great Expansion (2010–2021)

The Coalition Government's Priority (2010–2015)

When the Conservative-Liberal Democrat coalition came to power in May 2010, the PA stood at £6,475. The Liberal Democrats had run on a clear manifesto commitment to raise the PA to £10,000, arguing that this was the fairest way to help low earners — removing them from income tax entirely rather than managing them through a complex system of credits and benefits.

The policy was implemented aggressively. By 2011/12, the PA had jumped to £7,475 — a £1,000 single-year increase. By 2013/14, it reached £9,440, and in 2014/15 it hit the symbolic £10,000 milestone, a full year ahead of the original target.

This was a genuinely significant policy. In 2010, a worker earning £8,000 would have paid income tax of £305 per year. By 2014/15, they paid nothing. Around 2.7 million people were removed from income tax altogether between 2010 and 2015.

Continued Growth Under Conservative Government (2015–2021)

Following the Conservative majority victory in 2015, increases continued but at a more moderate pace. The government's stated target was a PA of £12,500 by 2020. This was achieved in 2019/20. A small additional increase to £12,570 was made in 2021/22 — described at the time as aligning the PA with the rounding conventions used for National Insurance contributions.

Over the full expansion period (2010–2021):

• The PA rose by £6,095 in cash terms — a 94% increase
• A worker on the National Living Wage benefited most: in 2010, they paid income tax; by 2021, many part-time and low-hours workers were completely outside the income tax system

Chapter Two: The Freeze (2021–2028)

Why the Freeze Was Introduced

At the March 2021 Budget, then-Chancellor Rishi Sunak announced that the income tax thresholds — including the PA and the higher rate threshold — would be frozen until April 2026. This was subsequently extended to April 2028 at the Autumn Statement 2022. In total, a seven-year freeze.

The rationale was fiscal consolidation following the enormous spending of the COVID-19 pandemic. By holding thresholds flat while wages grew, the government could raise substantial revenue without ever formally "raising taxes" — a politically convenient approach known as fiscal drag or a stealth tax.

The Mechanics of Fiscal Drag

Fiscal drag works because income tax is calculated in nominal (cash) terms, not inflation-adjusted terms. If wages rise by 5% per year and the PA stays fixed, more and more of each worker's income moves into the taxable band.

The effect is compounded across multiple years:

By 2026/27, the real purchasing power of the PA is approximately £10,090 in 2021 prices — a real-terms reduction of around £2,480 compared with 2021. In other words, the effective tax-free threshold has been quietly cut by nearly £2,500 in real terms over just five years.

How Many People Have Been Affected?

The Office for Budget Responsibility (OBR) estimated in 2023 that the combined effect of the income tax and National Insurance threshold freezes (2022–2028) would:

• Add approximately 4 million more taxpayers compared with uprating thresholds with inflation
• Push approximately 3 million more people into the higher rate (40%) tax band
• Generate an additional £25 billion per year in revenue by 2027/28

For context, a standalone basic rate tax increase to 21% would raise roughly similar revenue — but would be politically much harder to implement.

The Interaction with the National Living Wage

One of the most striking aspects of the PA freeze is its interaction with the rising National Living Wage (NLW). In 2026/27, the NLW for workers aged 21 and over is £12.21 per hour. At full-time hours (37.5 per week), this gives an annual salary of approximately £23,810 — well above the PA.

In 2010/11, a full-time NLW worker earning the then-minimum wage (£5.93 per hour, ~£11,580/year) was very close to the PA of £6,475 — paying around £1,021 in income tax.

Today, the same full-time NLW worker earns more than double the 2010 NLW in cash terms, but the PA has not kept pace with the growth in the minimum wage since 2021. A full-time NLW worker in 2026/27 pays approximately £2,248 in income tax, compared with essentially nothing they might have paid in real terms at the 2021 peak of PA generosity relative to minimum wage.

Comparison with the Higher Rate Threshold

The higher rate threshold (the point at which income is taxed at 40%) has followed a similar pattern — rising significantly from 2010 to 2021, then being frozen. In 2010/11, the higher rate threshold was £43,875. In 2026/27, it stands at £50,270, but again, the freeze means hundreds of thousands of additional workers have been pushed into the higher rate band by wage growth.

The Political Debate

The PA freeze has attracted criticism from across the political spectrum:

• The left argues it hits low and middle earners disproportionately, since the marginal effect is largest for those just entering the tax system
• The right argues it undermines the principle of taking low earners out of income tax, which was a celebrated achievement of the 2010s
• Some economists argue a PA freeze is a relatively efficient revenue raiser compared with alternatives, as it has lower distortionary effects than marginal rate increases

The 2028 end-date for the current freeze is a political commitment, not a legal cap. Future governments could extend it, but at a political cost that grows with each year of continued wage inflation.

What Would the PA Be Today if It Had Kept Pace with Inflation?

If the PA had been uprated with CPI inflation from April 2021 onwards (the same approach used for benefits and pensions), it would be approximately:

• 2022/23: £13,720
• 2023/24: £14,638
• 2024/25: £15,005
• 2025/26: £15,351
• 2026/27: ~£15,670

The gap between this hypothetical CPI-uprated PA (£15,670) and the actual frozen PA (£12,570) is £3,100. For a basic rate taxpayer, this gap represents approximately £620 per year in additional income tax — money they would not have paid if the PA had simply kept pace with the cost of living.

Summary

The history of the UK Personal Allowance is a story of two very different policy philosophies. The near-doubling between 2010 and 2021 was a deliberate and widely popular effort to lift low earners out of income tax. The post-2021 freeze is a quieter but financially significant reversal — raising billions in revenue without the political visibility of a tax rise. For workers whose wages have grown with inflation or above, the freeze has quietly increased their effective income tax burden year on year. Understanding this context is essential for making sense of your current tax position and planning for the years ahead.