City AM, on UK Politics, 26 October 2026

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Healey’s state pension shield could create

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The Treasury’s plans to shield low-income pensioners from income tax could lead to a “messy” cliff edge and a ballooning bill for future governments, a former pensions minister has warned. Chancellor John Healey will use his maiden Autumn Budget this week to protect nearly one million retirees who are dependent on the state guarantee by announcing they will not pay income tax. The plans to shield them from income tax was first announced by then chancellor Rachel Reeves in last year’s Budget and the policy is expected to run until the end of this Parliament.

Healey is anticipated to confirm that the full state pension will rise by £489 to £13,036 on Wednesday, but the rise will push those who rely solely on the state benefit above the £12,570 personal allowance threshold, meaning they will be dragged into the income tax net. Pulling them down This could leave them paying tax on nearly £500. To prevent them from paying, Healey is expected to announce a hike in the tax-free allowance for this group to £13,036.

But this will cost taxpayers £200m a year by 2030, according to calculations by Steve Webb, a partner at pension consultant LCP who served as pensions minister during the Conservative-Liberal Democrat coalition government. “This scheme is being developed because the repeated freezing of the personal allowance has dragged more and more retirees into the tax net. But the proposed solution looks messy and increasingly expensive,” said Webb.

“The gap between the new state pension and the tax threshold is set to grow every year, which will make the policy hard to switch off. But if it continues, the cost will grow and grow.” Despite the tax allowance being frozen for the remainder of this Parliament, the gap between the new state benefit and tax threshold will continue to grow, even if it only rises by the 2.5 per cent minimum guarantee, according to Webb. In the 2027/28 tax year, the state guarantee is expected to rise to £250.70 per week, leaving it £466.40 above the threshold, meaning the scheme would have to ignore £93.28 in tax at the 20 per cent basic rate.

By the 2029/30 financial year the pension is anticipated to climb to £263.35 per week, equal to £13,694 per year, exceeding the allowance by £1,124.20. This pushes the tax ignored up to £224.84. £1 drag Webb added that the new tax allowance is set to apply only to those whose income matches the new state pension, meaning those who find themselves with just £1 of taxable income above this level would lose the protection. Meanwhile, the Treasury is yet to clarify how the policy will affect those with a “modest” state pension who have accumulated small private pots.

He said: “At present, income tax would be collected through a PAYE tax code on the private pension. In future, would these individuals be taxed first and then have to claim back a tax rebate every year? “If the extra allowance is available only to those on a low income, there could be a growing ‘cliff edge’ problem where those with very small amounts of private income lose the whole allowance and end up worse off than those with nothing”.

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What we found (1)

City AM reports a former pensions minister's warning that the plan to keep low-income pensioners out of income tax will grow costly and create a cliff edge for those with small private pensions. The body attributes the warning and the figures to Steve Webb with care, and the arithmetic checks out. The headline fuses two of his separate points into one phrase inside quotation marks that he never said.

  1. Headline goes beyond the article

    Minor

    “‘messy £200m cliff edge’”

    Why this matters
    The headline puts 'messy £200m cliff edge' inside quotation marks as if it were one phrase someone said. It joins a cost estimate, an adjective and a separate warning into a single quoted claim.
    The impression it gives
    A reader takes it that a source warned of a cliff edge worth £200m, and that the £200m is the cost of the cliff edge itself.
    The context
    Nobody in the article says these words together. Webb calls the solution 'messy' in one remark. He gives the £200m as the yearly cost of the higher allowance by 2030. He describes the 'cliff edge' as a separate problem for pensioners with small private pots who would lose the allowance. The £200m is not the size of any cliff edge.

    How we know

    • Elsewhere in the article“the proposed solution looks messy and increasingly expensive”
    • Elsewhere in the article“this will cost taxpayers £200m a year by 2030”
    • Elsewhere in the article“there could be a growing ‘cliff edge’ problem where those with very small amounts of private income lose the whole allowance”

    Show it in the article

What it gets right

  • “according to calculations by Steve Webb, a partner at pension consultant LCP who served as pensions minister during the Conservative-Liberal Democrat coalition government”

    It attributes the £200m figure to a named source and tells the reader both his current commercial role and his past political post.

  • “was first announced by then chancellor Rachel Reeves in last year’s Budget”

    It tells the reader the policy is not new to Healey, which other coverage also confirms.

  • “the Treasury is yet to clarify how the policy will affect those with a “modest” state pension who have accumulated small private pots”

    It states plainly what is still unknown rather than presenting the details as settled.

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