Andy Burnham eyes £3,000 boost for state pensioners – but there’s a massive catch

Yesterday, it emerged that the PM and Chancellor John Healey were working on a plan to increase the personal allowance by £3,000 to £15,570. The Tories froze the tax-free allowance at £12,570 from 2022, and thanks to former chancellor Rachel Reeves, it will remain frozen all the way to 2031. Or maybe not. Now there’s a chance that Burnham will be lift the freeze, which is set to drag millions into higher tax brackets, including pensioners. This would be a huge move costing an estimated £20billion – but it would also be massively popular.

Under the plan, put forward by Labour donor Dale Vince, whose £6million in donations Labour happily trousered, the personal allowance wouldn’t just be unfrozen. It would be lifted to roughly what it would have been if the freeze had never been introduced. It would be a massive boost for millions of taxpayers, lifting the income of the poorest fifth of workers by an estimated £600 a year.

Yesterday, I argued that this bold move could sweep Burnham to a snap election victory, possibly as soon as November. Given that Britain now faces a renewed cost-of-living crisis, it makes sense for him to go to the polls early, before his early bounce totally fades. Labour has scant support among pensioners, who have witnessed the damage done by Labour governments over the decades, but increasing the personal allowance would have one massive benefit for them too.

Next year, the new state pension looks likely to increase by 3.9% under the triple lock, to around £13,036. That would put it roughly £466 above the frozen personal allowance, triggering a £93 tax bill. That will increase for every year the freeze continues while the state pension rises.

It’s daft. So daft that Reeves promised a workaround so pensioners living solely on the state pension won’t have to pay tax. But it would leave anybody who had just £1 of income from other sources, whether a personal pension, savings account or part-time job, facing a cliff edge where their state pension becomes taxable.

So far, Labour hasn’t said how the tax break would work, probably because it doesn’t know. Another Reeves masterstroke. Under Burnham’s plan, that problem disappears, as the new state pension would once again sit comfortably below the personal allowance.

The more I look at this idea, the more cunning it seems. The Tories and Reform will struggle to combat it. They might even copy it. But there are problems, and one in particular could deter pensioners from getting behind it.

The first is that it would be funded partly by increasing capital gains tax, which be bad for jobs and growth by deterring investors and entrepreneurs. What’s the point of building up a UK business if you only get to keep a tiny part of your gains?

Vince reckons hiking CGT will bring in £14billion, but HMRC projections suggest it could cut tax revenues, as people decide to hold onto assets, hoping the hike will one day be reversed. He also wants to stop high street banks earning interest on money they park with the Bank of England. There are issues with that too. But for pensioners, the biggest threat is this. What would happen to the triple lock if Andy Burnham was PM for five more years?

The triple lock is massively popular and has helped hard-up pensioners survive the cost-of-living crisis. But it’s coming under increasing pressure, including from left-wing activists, who want more help for younger people. A higher personal allowance would be a win. But if pensioners lost the triple lock, the loss could be much, much bigger.

Burnham could give with one hand, and grab back something more valuable with both of them. So let’s watch this carefully. Very carefully.