Fury erupts as 𝐴𝑛𝑑𝑦 𝐵𝑢𝑟𝑛ℎ𝑎𝑚 is compared to 𝑅𝑎𝑐ℎ𝑒𝑙 𝑅𝑒𝑒𝑣𝑒𝑠 following his latest controversial move

Andy Burnham’s plan to exempt the poorest state pensioners from income tax doesn’t stand up to scrutiny.

Last week, Burnham confirmed that state pensioners with no other income will be handed a special income tax exemption. But the pledge isn’t a new one. He’s simply rolling over a plan introduced by that one-woman policy disaster zone, former chancellor Rachel Reeves. She previously announced that retirees who have no other source of income apart from the state pension itself wouldn’t be made to pay income tax. Which sounded great. Until you took a closer look.

The state pension has become a tax issue because of the longstanding freeze on the £12,570 personal allowance. This was originally introduced by Rishi Sunak from April 2022. Reeves later extended the freeze by three years to April 2031. While the personal allowance will remain frozen, the state pension will continue to rise each year under the triple lock, increasing in line with earnings, inflation or 2.5%, whichever is highest.

Today, the full new state pension is worth £12,547 a year, just a fraction below the personal allowance. The Government Actuary has projected a 3.4% increase in April next year, which would lift it to roughly £12,974. That’s only a projection. But if correct, next year’s full new state pension would be around £404 above the personal allowance. A pensioner receiving absolutely no other taxable income could therefore face an income tax bill of roughly £81 a year at the basic 20% rate.

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And that bill could increase every year until 2031, as the state pension rises while the tax-free allowance remains frozen. This has created a politically toxic situation where the state pension itself pushes the poorest pensioners ever deeper into the tax net. Reeves’s answer was a quick fix. She promised that retirees whose only income comes from the state pension wouldn’t pay income tax during this Parliament. It sounded reassuring but in practice opened a nasty can of tax worms.

The underlying problem is that the UK has two state pension systems running side by side. Millions of retirees who reached state pension age from April 6, 2016 receive the new state pension. If they have absolutely no other source of taxable income, Reeves’s pledge just about works for them.

But older retirees are in a different position. They receive the older basic state pension, worth significantly less than the new one. Many also receive additional state pension, typically through SERPS or the state second pension (S2P). Unfortunately for them, these “increments” are taxable today and will remain taxable. If they lift their total state pension above the £12,570 personal allowance, they become liable for income tax even if the pensioner has no other source of income.

That could create a bizarre situation where one retiree pays tax on their state pension while another doesn’t, even if the two receive similar amounts. In fact, the older pensioner could potentially receive less money overall while paying tax when the other doesn’t.

Burnham didn’t create this mess. He’s inherited the problem and chosen to push it through while claiming the glory for protecting pensioners. But it will only help a minority, while leaving many more in the lurch.