Chancellor Rachel Reeves has made a significant pledge to millions of older Britons, promising that those whose sole income is the state pension will not have to pay income tax during the current Parliament.
The Frozen Allowance Problem
The announcement comes amid growing pressure over the impact of frozen tax bands. Tax thresholds have remained static since 2021, and Chancellor Reeves confirmed an extension of this freeze in last week's Budget. This fiscal drag means more people are pulled into paying tax as their incomes rise, even if their real-terms purchasing power hasn't increased.
Critically, the state pension is projected to exceed the personal allowance threshold in 2027. The personal allowance is the point at which an individual begins paying income tax. Without intervention, this would have meant millions of pensioners with no other income becoming taxpayers for the first time.
Details of the Chancellor's Promise
In a major statement, Rachel Reeves confirmed that people whose only source of income is the state pension will be shielded from income tax. She later reinforced this commitment in an interview with consumer champion Martin Lewis, explicitly stating that "in this Parliament, they won't have to pay the tax."
However, the protection has clear limits. The Chancellor clarified that retirees with even small private pensions alongside their state pension will still be liable for tax on their total income. This distinction is likely to be a focal point for debate, as it creates a disparity with working-age individuals.
Potential Controversy and Wider Impact
The policy could spark accusations of favourable treatment for pensioners. A working person earning the same amount as a pensioner living solely on the state pension will still be required to pay income tax. This generational difference in tax treatment is set to become a key political issue.
The Chancellor's move directly addresses the anxiety that has been building among pensioner groups in recent months. By drawing a line, the government aims to provide certainty for a vulnerable demographic. Nevertheless, the long-term question of how to manage the interaction between the rising state pension and a frozen personal allowance beyond this Parliament remains unanswered.
The decision underscores the difficult balancing act in tax policy, trying to protect specific groups while managing public finances under the continued freeze of tax bands, which is pulling millions more into the tax net overall.
