New Prime Minister Andy Burnham is reportedly considering a rule change to boost state pensioners with small private pensions, potentially raising the personal allowance threshold to protect hundreds of thousands of over-65s from income tax. The move comes as frozen tax bands have dragged more pensioners into paying tax since 2021.
Frozen tax bands hit pensioners
Hundreds of thousands of over-65s have been stung by tax rules because income tax bands have stayed frozen since 2021. The state pension rises every year under the triple lock, meaning that even a small private pension or other income stream can push younger pensioners above the £12,570 personal allowance threshold.
Burnham is reportedly considering raising this threshold, with suggestions it could be lifted as high as £18,000. This would potentially protect hundreds of thousands of over-65s from having to pay tax over the next year.
Costly but necessary support
Burnham has said he and new Chancellor John Healey will assess options on how they can support low-income families and pensioners. However, raising the personal allowance would prove costly. The new PM has also refused to rule out bringing back the 50p top rate of tax, with more details expected at the Budget.
Burnham told reporters: "All of this will be looked at though at the Budget, and obviously it's difficult given the financial circumstances in which we find ourselves. But I wanted to recognise the point because it's challenging for people and it's people on the lowest incomes perhaps who've most been affected by that. So it's an issue that I'm just kind of showing I have a visibility of the issue and the impact it's had on the different groups that I've mentioned, but it's difficult because changing the threshold is not without significant consequences. But I'm looking at it."
Other measures under consideration
In addition to the personal allowance change, Burnham has confirmed that VAT on electricity bills will be removed from 1 October, providing further relief for households. The new Labour leader's focus on pensioners and low-income families signals a shift in tax policy, though the financial constraints remain challenging.
