John Healey is reportedly planning to raise the personal allowance for low-income pensioners to £13,036 in the upcoming Budget, a move expected to help about one million people while leaving millions of others without direct benefit.
According to The Times, the measure is designed to prevent the full new state pension from pushing some pensioners over the tax threshold. The anticipated 3.9% triple lock increase would take the full new state pension to about £13,036 a year, some £466 above the current personal allowance of £12,570, which is frozen until April 2031.
Without action, somebody receiving the full amount could face an income tax bill of about £93 a year, despite having no other income. The measure is expected to cost around £200million a year by 2030.
How the measure would work
The Treasury would need to identify those who qualify and ensure their tax treatment changes if their circumstances alter. The allowance would also need to keep pace with future state pension increases to prevent the same problem recurring.
Former chancellor Rachel Reeves had pledged that pensioners whose only income was the basic or new state pension would not have to pay income tax, but the details of how the Government intends to deliver that promise have yet to be fully set out.
Potential cliff edge for some
If the special treatment is restricted to people whose sole income is the state pension, those with even a small amount of additional taxable income could face a costly cliff edge. That might include someone with a modest workplace or personal pension, earnings from a part-time job or taxable savings interest.
Someone with the full new state pension and no other income could escape tax, while a person receiving just £1 more could lose their exemption and face a minimum bill of about £93 on income above the ordinary £12,570 allowance.
Limited reach of the measure
The estimated one million beneficiaries would be a tiny minority of the UK's roughly 13.5million pensioners. The other 12.5million would get no direct benefit from this particular measure, and their income tax bills will relentlessly climb.
Low-income pensioners will welcome the protection, and Labour is expected to make a big fanfare about it on Budget day, possibly presenting it as compensation for threatening to scrap the triple lock from 2030 if Andy Burnham wins the next election.
