Budget 2025

Chancellor of the Exchequer Rachel Reeves announced a Budget that was a mixed bag for older people. But the freeze on the tax allowance thresholds - the point at which we start to pay tax - is likely to have an increasingly hard impact upon the incomes of retired people over the next three years.

Here is a summary of the main points:

Basic and new state pension payments to go up by 4.8% from April under the "triple lock" policy. The State Pension will rise by 4.8% in April 2026. The full new State Pension (post 2016 retirees) to £241.30 per week, an increase of about £575 per year. The full basic (old/pre-2016 retirees) State Pension is expected to rise to £184.90 per week. An increase of £8.45 per week - annual increase: £439.40.

A 2% rise to the ordinary and upper tax rates on dividend income from April 2026 and all rates on savings income from April 2027.

National Insurance (NI) and Income Tax thresholds frozen for an extra three years beyond 2028 dragging more people, including pensioners due to the latter, into higher bands over time.

Amount under-65s can put into cash Isas (Individual Savings Accounts) capped at £12,000 a year from April 2027, with the rest of the £20,000 annual allowance reserved for investments. Current allowances maintained at current levels for over-65s.

Green levies taken off energy bills and paid through general taxation in a move the Treasury says will save households £88 a year. A further £59 saving to be made by scrapping a customer-funded scheme helping low-income households insulate their homes.

A 5p "temporary" cut in fuel duty on petrol and diesel extended again until September 2026 before it rises again over a six-month period.

Premium cars to be excluded from Motability Scheme which allows people on certain disability benefits to lease vehicles more cheaply.

Regulated rail fares for journeys in England frozen next year for the first time since 1996 (there have been periods when prices rose by less than inflation).

Amount people can "sacrifice" from their salary - thereby avoiding NI on pension contributions - capped at £2,000 a year from 2029.

Cap limiting households on universal or child tax credit from receiving payments for a third or subsequent child to be scrapped from April. 

Help to Save scheme, which offers people on universal credit a bonus on savings, extended and expanded beyond 2027.

Properties in England worth more than £2m to face a council tax surcharge of £2,500 to £7,500 following a revaluation of homes in bands F, G and H.

Tax charged on rental income increased by 2 percentage points, from April 2027.

Remote gaming duty, paid on online casino betting, to rise from 21 to 40% from April 2026. General betting duty, paid on sports betting, to rise from 15 to 25% online from April 2027, with an exemption for horse racing.

Cost of a single NHS prescription in England frozen at £9.90 for another year (they remain free in Wales, Scotland and Northern Ireland and for over-60s in England).

Infected blood compensation will be made exempt from inheritance tax.

The economy

Inflation is predicted to average 3.5% this year, before falling to 2.5% next year and returning to the government's 2% target in 2027.

The economy is now forecast to grow by 1.5% on average between 2026 and 2029, down from the previous estimate of 1.8%

The NPC view

While we can welcome confirmation that the triple-locked state pension will rise by 4.8% from April 2026 and some more relief on energy bills there is still a lot in the Budget that will poorly impact older people for years to come.

Jan Shortt, General Secretary, of the NPC (National Pensioners Convention) commented on the further freeze of personal tax allowances:  “This ‘stealth tax’ means millions of older people are going to have to start paying tax for the first time as the result. So, while the Chancellor might have kept her pledge to keep the triple lock on the annual state pension rise, she is set to take any increase back through this extended tax threshold freeze.

She went on to say: “But our real disappointment in the Budget, is that the ‘broad shoulders’ the Chancellor said would be made to deliver for the economy are nowhere in the budget – apart from the so-called ‘mansion tax’ which is a drop in the ocean. 

“We really need to start the conversation between whether the state pension is a benefit or not and why this government seeks to tax the state pension as a benefit.  It is also time that we discussed the fact that two thirds of older people in this country do not receive anywhere near the new state pension and will get a rise of just £8.45 per week from next April.”

Dangers

Alongside tax rises, the government’s aim to increase "fiscal headroom" has raised concerns about future funding for the NHS and social care with increasing privatisation and nothing circulating in the UK economy because profits are in offshore banks. If spending cuts or insufficient allocations occur, older people may face reduced access to vital care services and support.

Persistent inflation and rising living costs will disproportionately impact those on fixed incomes, such as pensioners, especially if state pension increases fail to keep pace with inflation.  

Two million pensioners living in poverty are ignored. 

There’s also deep concern amongst social care leaders, who appear to be facing funding the Government’s announced pay rise for lowest earners without the safety net of extra dedicated funding. If that sector falters it will simply add further pressure on the NHS. Only 10% of over-44s are confident that the Government will fix adult social care. 

What the Government could do 

We need to see a commitment directed towards addressing pensioner poverty.  The Government needs to increase the Warm Home Discount to ease the burden of escalating bills, to support older private renters by uprating Local Housing Allowance so no one has to make dangerous sacrifices to pay their rent.

The absence of meaningful action to address later-life poverty will leave many older people on a low income feeling forgotten and now many will be worried about losing more of it through tax because of the extension of the freeze on personal tax allowances to 2031, a year longer than expected.