Raise income-tax thresholds: calculation note

Central fiscal result

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

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

Scenario and baseline

• Personal allowance rises from £12,570 to £20,000.
• Higher-rate threshold rises from £50,270 to £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 £70,000 threshold.
• Non-taxpayers receive no direct tax benefit.

Gross impact

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

Fiscal build-up, central case

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

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

Behaviour and pass-through

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

Phasing

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

Main source groups

• Mirrlees and review team, "Tax by Design: The Mirrlees Review" (IFS and Oxford University Press, 2011): Broad tax bases and low marginal-rate distortions are usually preferred to narrow reliefs and complex thresholds; frames the threshold rise as costly and broad-based, not automatically pro-growth.
• Saez, Slemrod and Giertz, "The Elasticity of Taxable Income" (Journal of Economic Literature, 2012): Taxable income responds to tax rates through labour supply, avoidance, income shifting and timing; supports behavioural caution for very large income-tax cuts.
• HM Revenue and Customs, "Direct effects of illustrative tax changes" (2026): HMRC ready-reckoners show large revenue effects from income-tax, NI, VAT, fuel-duty and corporation-tax changes; primary fiscal scale anchor.
• Reform UK, "Our Contract with You" (2024): The Contract specifies thresholds, duties and business-tax proposals while claiming annual cost and saving totals; defines broad current tax pledges.
• House of Commons Library, "Income tax: rates and allowances" (2026): Used to size the affected population, baseline economic quantities and sectoral exposure.
• Institute for Fiscal Studies, "Reform UK manifesto response" (2024): Used to define the pledge wording, policy scope and implementation scenario being modelled.
• Tax Policy Associates, "Reform UK tax pledges costing note" (2024): Used to define the pledge wording, policy scope and implementation scenario being modelled.
• Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.