Chancellor John Healey will protect pensioners relying solely on state pension income from paying income tax through a new allowance announced in his first Budget on Wednesday, 28 October 2026. According to BBC News, the measure addresses a timing issue created by the state pension increase, which will rise by 3.9% to £13,036.40 annually from April 2027, pushing it above the frozen personal tax allowance of £12,570.
The government had previously committed to ensuring pensioners with only state pension income would not face a tax bill. The Telegraph reported that the new allowance would rise to £13,036 and then track state pension increases during the current Parliament, meaning pensioners with additional income from private pensions or other sources would remain liable for tax where applicable. The protection is expected to cover nearly one million pensioners and cost approximately £200 million annually by 2030, according to Hargreaves Lansdown's analysis.
Healey's allies contend that the new allowance will spare pensioners from administrative burden and the need to file tax returns simply to settle a modest tax liability. The measure represents a targeted approach to protecting vulnerable pensioners while maintaining the broader tax system.
What else is in the Budget?
The Budget, to be printed on Tuesday evening, will contain announcements on tax and spending, though Treasury sources have indicated the scale will be smaller than recent Labour and Conservative fiscal statements. Healey's speech is expected to be refined until delivery on Wednesday lunchtime.
The Conservative Party is calling for cuts to green taxes, red tape and benefits to reduce energy bills. Reform UK has recommended 60 policies it claims will create jobs, including approval of the controversial Rosebank oil field, a project Healey is understood to support. Additionally, Healey has decided against reducing the maximum tax-free pension lump sum from £268,275 to £100,000, preserving current pension flexibility for higher earners.
What are opposition parties proposing?
Liberal Democrat Treasury spokeswoman Daisy Cooper has urged the government to establish a new growth and defence partnership with the European Union, including joining the single market, arguing this would help reduce the substantial tax burden on households. The Green Party has called on Healey to prioritise affordability in his first Budget, proposing that energy bill support be funded by ending tax relief for data centres. Senior Green politicians, including leader Zack Polanski, MPs and peers, outlined their suggestions in correspondence to the Chancellor.
Why does the state pension increase matter for tax?
The personal allowance has been frozen at £12,570 until April 2031 as part of government fiscal policy. Meanwhile, the triple lock mechanism raises the state pension by whichever is highest: earnings growth, inflation or 2.5%. This divergence means the state pension will eventually exceed the tax-free allowance, creating a situation where pensioners with only state pension income would technically owe tax despite having modest total income. The new allowance announced by Healey resolves this mismatch for the current Parliament.
What happens next?
Healey is expected to confirm the state pension increase and formally announce the tax protection measure during the Budget speech on Wednesday, 28 October 2026. The announcement will clarify how the new allowance operates and provide certainty for pensioners ahead of the April 2027 pension increase.
