Chancellor John Healey will introduce a new tax allowance for low-income pensioners to shield them from income tax when the state pension rises, the government said ahead of Wednesday's Budget announcement. The full, flat-rate state pension is expected to increase by 3.9% to £13,036.40 a year from April, which would exceed the £12,570 personal tax allowance and make recipients liable for income tax under current rules.
The government has previously committed to not taxing people who receive income only from the state pension. Healey's new allowance fulfils this pledge by ensuring low-income pensioners will not face the administrative burden of paying tax on a small amount of income, according to the Chancellor's allies. The Treasury has not yet confirmed how many pensioners the measure will affect or provided full details of how the allowance will operate.
The Budget announcement comes as rival parties outline competing fiscal strategies. The Conservatives are pushing for cuts to green taxes, red tape and benefits to reduce energy bills. Reform UK is advocating 60 policies it claims will boost job creation, including approval of the Rosebank oil field, which Healey is understood to support. The Liberal Democrats are calling for a growth and defence partnership with the European Union, while the Green Party wants funding for energy bill support through ending tax relief for data centres.
Treasury sources indicated Wednesday's Budget will not match the scale of tax and spending announcements from recent Labour and Conservative governments. The Budget is scheduled to be printed on Tuesday evening, with the Chancellor's speech expected to be finalised before delivery on Wednesday lunchtime.
For low-income pensioners relying solely on the state pension, the new allowance means they will avoid having to file tax returns or pay income tax despite their pension exceeding the standard personal allowance.