Reality check: can Treasury afford pledge to raise tax-free pension allowance?

The Conservatives have announced plans to boost pensioners’ income with a “triple lock plus”. It is a pitch to a group who, according to many polls, are the most likely to support the Tories, and is seen as a measure designed to shore up the party’s core vote.

What is the pledge?

From April 2025, a Conservative government would raise the tax-free pension allowance in line with the triple lock. That would mean the personal allowance for pensioners would increase by 2.5%, average earnings growth or inflation – whichever is the highest. According to the Office for Budget Responsibility, by 2027 the state pension is expected to be higher than the tax-free personal allowance. The Conservatives say the “triple lock plus” would mean the state pension would always be below the tax-free threshold, preventing millions more pensioners being dragged into income tax. They say it will amount to a tax cut of about £100 a year for 8 million pensioners next year – rising to £275 a year by the end of the parliament.

How much would it cost?

The Conservatives claim the policy would cost an estimated £2.4bn a year by the end of the parliament, and is in addition to the £2.5bn bill for the prime minister’s plan to recruit 18-year-olds to take part in a national service scheme. However, the Institute for Fiscal Studies (IFS) – the tax and spending thinktank – said forecasts of what it might cost could be blown off course if there was a repeat of the kind of economic shocks we have had over the last four years. It would only take inflation to take off again and the bill could rocket, it said.

How will it be paid for?

Rishi Sunak said a previously announced plan to save £6bn a year from a clampdown on tax avoidance and evasion would be used to fund the tax break for pensioners. Labour has a similar scheme to tackle errant taxpayers, though it is more circumspect about the money it will raise. The Conservatives said its national service plan would be partly paid for by cracking down on tax avoidance and evasion, but also by £1.5bn being diverted from the UK Shared Prosperity Fund.

Is it affordable?

Carl Emmerson, deputy director at the IFS, said there were doubts about any government’s ability to achieve savings from chasing tax evaders (evasion is criminal activity) and avoiders. The Office for Budget Responsibility has also said there is not enough evidence to show the Treasury can raise the funds from avoidance and evasion. More broadly, Emmerson said: “The bigger picture is that the public finances are not in a good state and the next government will need to show how it is going to fund public services.” Promises of tax cuts make that harder, he said.

Who aligned tax thresholds in the first place?

In 2010, the coalition government embarked on a plan to end a long period when pensioners enjoyed a higher income tax allowance than working people. Back in 2010–11, the personal allowance was £6,475 for people aged under 65, compared with £9,490 for those aged 65 to 75 (and £9,640 for people 75+). Ministers raised the working age threshold until it was the same as the pensioner allowance. In recent years the threshold has been the same for everyone and frozen, as part of a policy to raise taxes.