John Healey Lifts Pensioners’ Tax-Free Allowance To Shield Over One Million From Income Tax

Shielding low-income pensioners

Chancellor John Healey is set to shield low-income pensioners from income tax in his first Budget on Wednesday by lifting the tax-free allowance for pensioners on the lowest incomes to £13,036, matching the full flat-rate state pension. The full, flat-rate state pension is expected to increase by 3.9% to £13,036.40 a year from April, which would otherwise take the payment above the £12,570 personal tax allowance. Healey will use the Budget to shield more than 1 million pensioners from the benefit being taxed, even though the triple lock would push the pension above the £12,570 threshold.

Budget date3 of 3 outlets reported it▾

The Telegraph said Healey is expected to confirm the full state pension will rise by £489 to £13,036, and it said the change would, under current tax policy, push thousands of people over the personal allowance threshold. The Telegraph also said Healey is expected to announce a rise in the tax-free allowance for low-income pensioners to £13,036, and it reported the move would cost taxpayers £200m a year by the end of the decade.

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Triple lock and tax caps

The tax-free allowance for pensioners on the lowest incomes will be lifted to £13,036, precisely matching the new full state pension amount. The increase follows the triple lock mechanism, which guarantees the state pension rises by whichever is highest among wage growth, inflation or 2.5 per cent, and this year that formula will push the benefit up by 3.9 per cent, adding £489 to the annual payment. The BBC said the government had already committed to not taxing people who only get an income from the state pension, and it said Healey will explain this pledge will be met by plans for a new tax allowance for low-income pensioners.

Allowance level4 of 5 outlets reported it · not in BBC▾

Healey decided not to reduce the maximum tax-free lump sum that can be drawn from a pension pot, after reports suggested the Chancellor was planning to reduce the threshold for a withdrawal from £268,275 to £100,000. The Chancellor decided against cutting the maximum tax-free lump sum, and it said reports had suggested slashing the cap from £268,275 to £100,000, but he will leave the threshold untouched.

Lump sum kept3 of 4 outlets reported it · not in BBC▾

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Costs, debt, and political pushback

The move to shield pensioners from income tax is expected to cost taxpayers £200m a year by the end of the decade, while government debt is approaching £3tn and the Treasury spent £8.8bn servicing interest on it in August alone. The Institute for Fiscal Studies has identified a £35billion shortfall to sustain current spending commitments and increase defence funding, and the state pension triple lock itself faces an overhaul from 2030. More specific details, including how many pensioners this will affect, have yet to be confirmed by the Treasury, and the Budget is due to be printed this evening with Healey's speech likely to be fine-tuned right up until it is delivered on Wednesday lunchtime.

Daisy Cooper, the Liberal Democrat Treasury spokeswoman, told the Times that the figures expose the shocking scale of the stealth tax raid started by the Conservatives and continued by Labour, and she argued this would help ease the huge tax burden weighing people down

in the BBC account. LBC quoted Daisy Cooper saying: "These figures expose the shocking scale of the stealth tax raid started by the Conservatives and continued by Labour."

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