Budget to shield poorest pensioners from income tax - report

26th Oct 2026 10:31

(Sharecast News) - The chancellor will use this week's Budget to shield low income pensioners from having to pay tax, it was widely reported on Monday.

John Healey, who is set to deliver his first Budget since Andy Burnham took over as prime minister, is expected to confirm on Wednesday that the full state pension will rise by 3.9% to £13,036.40 a year from April.

That would take the payment above the £12,570 tax allowance and mean around 1m pensions would become liable for income tax. However, to retain the principle that the state pension is not taxable, Healey is expected to announce a rise in the tax-free allowance for low-income pensions, to £13,036. According to The Times, the move is likely to cost taxpayers £200m a year by 2030.

Healey needs to juggle a range of competing issues, including reining in government spending and borrowing, managing inflationary pressures and the growing cost of living as well as sluggish economic growth.

It was reported yesterday that he is set to include a £432m plan to tackle rough sleeping, something Burnham has vowed to end, as well as a limited package of measures aimed to curbing the cost of living for those hardest hits.

However, unlike with previous fiscal events, there have been minimal leaks ahead of this Budget, and speculation has remained largely muted.

Susannah Streeter, chief investment strategist at Wealth Club, said: "A calm of sorts has descended on gilt markets, with bond investors appearing a little more supportive of buying UK government debt, despite the uncertainty of the Budget looming. The chancellor isn't expected to pull many rabbits out of the hat, given the conditions are far from clement for surprise giveaways.

"UK government borrowing costs remain around two-decade highs, exacerbated by conflict sending the price of energy soaring and the prospect of multiple rate hikes from the Bank of England.

"Although the government has claimed it intends to be more supportive to businesses, many company owners are still bracing for more tricks than treats from the Budget."