New Chancellor John Healey has confirmed he will press ahead with a Rachel Reeves income tax rule that ensures state pensioners who receive no other income will not pay tax. Healey, appointed by Prime Minister Andy Burnham on Monday, replaced Ms Reeves as Chancellor of the Exchequer.
Commitment to Pensioners
Healey has made a commitment that state pensioners without additional income will be exempt from income tax. This comes as the full new state pension is set to be dragged into taxation for the first time from next year. The personal allowance currently stands at £12,570 per year, meaning individuals can earn up to that amount without being taxed.
The current rate of the new state pension is £241.30 per week, or £12,547.60 annually, which is just below the tax threshold. However, under the triple lock policy, the state pension rises each April based on the highest of inflation, wage growth, or 2.5%. This could push pensioners' incomes above the personal allowance in the near future.
Rachel Reeves' Previous Pledge
In last year's Budget, Ms Reeves pledged that “people only in receipt of the basic or new state pension do not have to pay small amounts of tax through Simple Assessment from April 2027.” A Treasury spokesperson reiterated this commitment, stating: “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. By keeping the triple lock, 12 million pensioners will see their income rise by up to £470 this year, and they continue to benefit from the highest personal allowance in the G7.”
Healey's Fiscal Approach
Mr Healey said: "We will help people live well. We’ll invest in their success rather than paying for their failure. Nevertheless, I know, like you do, that the challenges Britain face are still deep: low growth, high debt, too much inequality, overstretched public finances and at the same time, within the international threats rising both to our economy and to our security. So for me, as for any Chancellor, fiscal control must be the first duty. It is mine."
Impact on Workers
In a related development, Andy Burnham's government has faced criticism over a £960 blow for workers earning between £12,571 and £50,270, as tax thresholds remain frozen. This policy has been a point of contention, with some arguing it places an unfair burden on middle-income earners while pensioners are protected.
