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What is the Tory pension plan and what are the implications of the policy?

Rishi Sunak has moved to protect pensioners from frozen income tax thresholds introduced by the Government in 2021.

Last updated
General Election campaign 2024

Rishi Sunak has gambled on a £2.4 billion tax break to help secure the support of pensioners as he battles to remain in No 10.

Here the PA news agency examines the details of the plan, how it has been received and the implications for Tory general election prospects.

– What has the Government announced?

The Conservatives have countered claims by Labour that the triple lock was in danger under the current Government by announcing a plan to boost pension protection with a “triple lock plus”.

The party has set out a £2.4 billion-a-year tax break to prevent more retirees being dragged into paying income tax. This is due to pensions rising with soaring inflation while tax thresholds have been frozen since 2021.

General Election campaign 2024
Rishi Sunak has moved to protect pensioners’ incomes (Stefan Rousseau/PA)

The plan would be achieved by matching the income tax allowance for pensioners to the level of the new state pension.

The party said the policy would amount to a tax cut of around £100 for eight million pensioners next year, which is expected to rise to almost £300 a year by the end of the Parliament.

– How will the policy be paid for?

During appearances on the broadcast round on Tuesday morning, Work and Pensions Secretary Mel Stride said his party can “comfortably” raise the money to cover the cost of a tax cut for pensioners.

Cabinet meeting
Work and Pensions Secretary Mel Stride said £6 billion a year would come from clamping down on tax avoidance and evasion (Victoria Jones/PA)

Mr Stride said £6 billion a year would come from clamping down on tax avoidance and evasion, insisting the target figure is “very much in line” with figures achieved in the past.

He went on to say the head of the National Audit Office had confirmed that the number is “achievable”.

– What assessment have experts made of the plan?

Experts have responded to the announcement by highlighting that increasing pensioners’ personal allowance is a reversal of previous Government policy.

The former approach would have seen pensioners’ income hit by “fiscal drag”, while the Institute for Fiscal Studies (IFS) calculates that around half of the £2.4 billion annual cost of the new plan is the price of not continuing to raise income tax on pensioners.

Commenting on this point, the IFS said in a briefing: “It is rather like taking £100 off someone, giving them £200, and expecting them to think they are £200 better off.”

The IFS also warned that applying the triple lock to both the income tax allowance for pensioners and the new state pension “creates considerable – and costly – uncertainty over how high it will go”.

This means the cost could end up being higher than the Conservatives’ current target figure of £2.4 billion a year if there is a continuation of the economic volatility of the last 15 years, the IFS said.

It also warned that there remains “very little headroom” against the Chancellor’s own fiscal rules to cut tax or increase spending.

Meanwhile, Torsten Bell, chief executive of the Resolution Foundation think tank, said the “biggest beneficiaries of another tax system complication will largely be better-off pensioner households”.

– How has Labour responded to the plan?

Labour described the plan as a “desperate move” from a party which was “torching” what was left of its claims to economic credibility.

Shadow paymaster general Jonathan Ashworth said: “Why would anyone believe the Tories and Rishi Sunak on tax after they left the country with the highest tax burden in 70 years?”

General Election campaign 2024
Shadow chancellor Rachel Reeves said Labour is committed to the pensions triple lock (Stefan Rousseau/PA)

Shadow chancellor Rachel Reeves said Labour is committed to the triple lock, but it appears unlikely the party will match the Conservatives’ pension plan.

Ms Reeves accused the Conservatives of unfunded tax cuts worth £64 billion and said “triple lock plus” was “an extra one, on top of that”.

– Why has the Government announced targeted help for pensioners?

The move to bolster pensioner incomes has generally been interpreted as a bid to shore up a key element of traditional Tory support amid the prospect of losing votes to Reform UK.

However, a strategy focused on the party’s base rather than persuading others to support them could be seen as an attempt at damage limitation rather than a bold move to shift broader public opinion.

(PA Graphics)

Also, while the policy aims to give retirees “peace of mind”, other ages will still endure a rising tax burden because of frozen income tax thresholds as things stand.

It remains to be seen whether a focus on protecting the incomes of a minority of the population will significantly boost support for the Tories.