Healey to shield low-income pensioners from income tax in the Budget

Pensioners on low incomes will be shielded from income tax by Chancellor John Healey in his first Budget on Wednesday.

The full, flat-rate state pension is expected to increase by 3.9% to £13,036.40 a year from April. This would take the payment above the £12,570 personal tax allowance and therefore be liable for income tax if no changes are made.

The government had already committed to not taxing people who only get an income from the state pension. Healey will explain this pledge will be met by plans for a new tax allowance for low-income pensioners.

Healey's plans come as the Conservatives and Reform UK unveil their alternative Budget proposals, including deep cuts to the welfare bill.

The chancellor's allies argue his plans for pensioners will mean they do not need to face an administrative burden just to pay a small amount of tax.

The Budget is due to be printed this evening, with Healey's speech likely to be fine-tuned right up until it is delivered on Wednesday lunchtime.

Treasury sources concede it will not involve the scale of tax and spending announcements seen from Labour and Conservative governments in recent years.

The Tories are calling on the chancellor to cut green taxes, red tape and benefits to bring down energy bills.

Reform is recommending the chancellor adopts 60 policies which they claim will create jobs - including approving the controversial Rosebank oil field - a project Healey is understood to back.

Liberal Democrat Treasury spokeswoman Daisy Cooper has called on the government to agree a new growth and defence partnership with the EU, including joining the single market. She argued this would help "ease the huge tax burden weighing people down".

The Green Party has urged Healey to use his first Budget to "make the UK affordable", including by funding energy bill support by ending a tax relief for data centres.

Senior Green politicians, including leader Zack Polanski, MPs and peers, made clear their suggestions in a letter to Healey.