New Prime Minister Andy Burnham and Chancellor John Healey have scrapped several major financial policies announced by former Chancellor Rachel Reeves, including the state pension tax exemption, less than six months before they were due to take effect. The changes, announced in this week's Budget, mark a significant departure from the previous government's plans.
Reeves' pension tax exemption abolished
In her 2025 Budget, Rachel Reeves announced that state pensioners with no other income apart from DWP state pension payments would be exempted from tax, even if they broke the threshold due to a new triple lock boost. She stressed that any other income, such as savings or work income, would cause the exemption to be lost.
The Treasury had assured the Express that older state pension benefits such as Additional Pension (AP) and Second State Pension (SERPs) would not be exempted from the tax. A Treasury statement from a few months ago said: "Anyone whose only income is the full new or basic state pension without any increments will not pay income tax and we are committed to that over this Parliament."
None of that now applies. The new rules announced by Mr Healey will allow any income to be exempted, not just the state pension, and will allow increments such as the AP payment to be exempted after all.
Other Budget policies reversed
Mr Healey has also scrapped the Cash ISA cut that Rachel Reeves announced and doubled the savings and property income tax hikes she had planned. The new system is more generous to state pensioners, handing greater tax breaks to older pensioners in particular, with a taper between £13,037 (the full new state pension) and £13,319 to avoid a "cliff edge" for all pensioners.
With less than six months to go, state pensioners were preparing for new rules which have now suddenly been changed. Savers with Cash ISAs and households with rental properties were also preparing for a set of tax rates and limits which have now been altered again at the last minute.
Criticism of policy instability
The policy zig-zagging has been criticised as shambolic, with concerns raised about the government's consistency. The article notes that chopping and changing chancellors and announcing then axing policies year-to-year does not exude confidence, and questions whether policies already announced can be cut again, undermining trust in future plans such as Andy Burnham's triple lock changes planned for 2030.
