Older Britons are set to receive a significant boost in their income, with the state pension rising by £550 next year. This increase comes as part of the government’s commitment to the “triple lock” policy, which ensures that pensions grow in line with inflation, average earnings growth, or by a minimum of 2.5 percent—whichever is highest. The announcement will be made by Rachel Reeves, the Chancellor of the Exchequer, during the upcoming Budget presentation scheduled for Wednesday.
The latest data reveals that average wages increased by 4.7 percent in the year leading up to July, surpassing the current inflation rate of 3.6 percent. As a result, the new state pension amount will exceed £240 per week in the financial year 2026-27. This translates to an annual increase of £550, which is £120 more than what would have been granted had the pension been adjusted solely for inflation.
Concerns over future taxation for pensioners are emerging alongside this announcement. Starting in 2027, many pensioners may find themselves subject to income tax, even if the state pension is their sole income source. This is due to the rising nominal value of pension payments while tax thresholds remain frozen, leading to increased tax burdens on retirees.
Rachel Reeves emphasized the government’s focus on supporting older citizens. “Whether it’s our commitment to the triple lock or to rebuilding our NHS to cut waiting lists, we’re supporting pensioners to give them the security in retirement they deserve,” she stated. She also indicated that the Budget would outline measures aimed at addressing pressing issues such as NHS waiting lists and the national debt.
The triple lock policy, which currently enjoys cross-party support, faces criticism from economists who warn of its long-term affordability. Many argue that it guarantees pension growth that outpaces both wages and inflation, posing potential challenges for future budgets.
Tax Threshold Freeze Raises Concerns
In advance of the Budget, the Liberal Democrats have raised alarms about the freeze on tax thresholds, which is expected to affect approximately nine million people. Previously, tax thresholds were adjusted annually in line with inflation, preventing individuals from facing higher tax rates despite stagnant wage growth. Since the freeze began in 2021, 4.8 million people who would normally be exempt from income tax are now liable, while an additional 4.2 million individuals will be pushed into the 40p higher tax bracket as opposed to paying the standard 20p rate.
The Deputy Leader of the Liberal Democrats, Daisy Cooper, criticized the Labour government’s plans, stating, “Rachel Reeves once accused the Conservatives of ‘picking the pockets’ of working people by freezing tax thresholds – now Labour plans to do exactly the same. That’s rank hypocrisy.”
The implications of the government’s economic decisions extend beyond pensions and taxes. In a pre-Budget speech, Kemi Badenoch is expected to highlight the negative impact of the new Employment Rights Bill on seasonal jobs. She will address business leaders at the CBI, arguing that the legislation complicates staffing decisions for businesses, particularly during peak seasons. Badenoch will illustrate her argument by saying, “If a university undergrad chooses to get a Christmas job and works 40 hours a week in the three weeks before December, they then have the right to those same hours in January, February, and March. Great. Except there’s no demand then, and revenue falls off a cliff.”
As the government prepares for the Budget, the decisions made will not only influence the immediate financial landscape but will also have lasting effects on the economy and the well-being of many citizens across the country.
