Older Britons will receive a significant boost to their income next year as the UK Treasury has confirmed a rise in the state pension of £550. This increase, driven by the “triple lock” policy, will be officially announced by Rachel Reeves during the upcoming Budget presentation on March 15, 2024.
The triple lock mechanism ensures that the state pension increases annually by the highest of inflation, average earnings growth, or a minimum of 2.5 percent. Recent data indicates that wages grew by 4.7 percent in the year leading to July 2023, surpassing the current inflation rate of 3.6 percent. As a result, the full new state pension is projected to be worth just over £240 per week during the 2026-27 financial year, translating to an annual increase of £550. This figure is £120 higher than what would have been allocated if the pension had merely kept pace with inflation.
From 2027, pensioners may face a new challenge as income tax liabilities are expected to rise. The nominal value of the state pension is set to increase each year, but the tax threshold has been frozen since 2021, potentially pulling many pensioners into taxable income brackets despite the state pension being their primary source of income.
Chancellor of the Exchequer stated, “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. At the Budget this week, I will set out how we will take the fair choices to deliver on the country’s priorities to cut NHS waiting lists, cut national debt and cut the cost of living.”
Political and economic analysts have raised concerns about the sustainability of the triple lock. While it currently enjoys cross-party support, many economists warn that its structure will lead to pensions increasing at a rate that outpaces wage growth and inflation over time, marking it as potentially unaffordable in the long run.
Tax Threshold Freeze and Its Implications
As the Budget approaches, the Liberal Democrats have voiced concerns over the freeze on tax thresholds, which is expected to push approximately nine million people into higher income tax brackets. Previously, tax thresholds adjusted in line with inflation, preventing individuals from facing increased tax rates without an actual rise in their earning power. However, this freeze has been in effect since 2021 and is anticipated to extend until 2030.
Data from the House of Commons suggests that about 4.8 million people will be liable for income tax who would otherwise have been exempt, while an additional 4.2 million individuals are expected to be moved into the 40p higher rate band, rather than remaining in the 20p basic rate.
Deputy Leader Daisy Cooper criticized the Labour Party’s stance, 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.”
In a related context, Kemi Badenoch will deliver a pre-Budget speech accusing the government of stifling seasonal employment opportunities. Badenoch asserts that the new Employment Rights Bill complicates hiring practices, particularly for temporary roles such as Christmas jobs. She argues that under the proposed legislation, businesses may hesitate to hire seasonal workers due to concerns over job security and compensation in subsequent months.
Badenoch plans to address the CBI business group, stating, “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.”
The ongoing discussions surrounding the Budget reveal complex interactions between pension policies, tax structures, and the labor market, with significant implications for the financial well-being of millions of British citizens.
