Andy Burnham has assured that state pensioners reliant solely on their state pension will not be compelled to pay income tax to HMRC, amid revelations that retired individuals paid around £8 billion more in tax last year. This increase in tax liability came as a result of frozen personal allowances, which have pushed many people into higher tax bands.
Currently, the personal tax-free allowance stands at £12,570. Mr Burnham has stated that if the state pension rises above this threshold, as expected due to the triple lock mechanism, those pensioners receiving income solely from Department for Work and Pensions (DWP) payments will remain exempt from income tax.
Steve Webb, a partner at LCP and former pensions minister, commented on the impact of frozen tax thresholds. “The constant freezing of tax thresholds and allowances has dragged millions more people into paying higher rates of income tax,” he said. “However, a consequence is that when individuals contribute to pensions, they receive increased tax relief, which has caused the cost of tax relief to soar.”
Industry experts, speaking to City AM, attributed the rise in tax bills to taxpayers being pushed into higher tax bands due to these freezes.
Mr Webb, one of the architects of the triple lock pledge, emphasised that both Makerfield MP Andy Burnham and Chancellor John Healey intend to maintain the policy throughout the current Parliament. They are keen to uphold the manifesto commitments from the previous administration, with former Chancellor Rachel Reeves also confirming plans to retain the pledge.
Highlighting the broader impact, Mr Webb noted, “Frozen personal allowances have led to a sharp increase in the number of pensioners paying income tax, and the overall tax bill on pensioners has risen significantly. It is important, amidst debates about fairness between generations, to remember that pensioners are also contributing increasing amounts back to the exchequer.”
Regarding potential government measures to manage the growing costs associated with tax relief, Mr Webb pointed out that any adjustments would be challenging to implement mid-Parliament. “Changes would be complex, technical, and could require years to enact. They would generate little revenue before the next election and might be politically unpopular. The government may decide it must accept the escalating cost of tax relief for the time being,” he concluded.