Budget 2026 under new prime minister Andy Burnham approaches
The first Budget under new prime minister Andy Burnham is just around the corner, with households across the country waiting to find out what the planned fiscal changes could mean for them, reports BritPanorama.
Several policy plans have been rumoured in the build-up to the event, as the cost of living remains a major concern for many households. Inflation rose to 3.5 per cent in September, marking the highest level in nearly a year, as rising energy costs continue to drive up prices.
It is anticipated that changes to benefits and pension policy could play a central role as the government looks to shore up its shrinking fiscal headroom and lower welfare spending.
The prime minister has already indicated that his government will fight the next election on a contentious pledge to revise the triple lock. After taking effect in 2030, these changes could save £15bn per year by 2040, according to official estimates.
Plans to reform welfare spending are also expected, with details to be announced following a review into Personal Independence Payment (PIP) and another review addressing youth unemployment, both scheduled for later this year.
However, the upcoming fiscal event will shed more light on chancellor John Healey’s economic plan for the future, especially as he lays out the spending and saving commitments that will shape the year ahead and beyond.
Mr. Burnham’s pledge to revise the triple lock would not take effect until 2030 at the earliest. Nonetheless, there are several changes the government could implement to pension policy before that date.
Ahead of the Budget, reports suggest that chancellor Healey is poised to confirm how nearly a million pensioners will be shielded from paying income tax in the next financial year.
The state pension is set to rise 3.9 per cent from April in line with wage growth, bringing the yearly total to £13,036. This will take the full new state pension amount above the income tax personal allowance threshold of £12,570 for the first time.
Former chancellor Rachel Reeves had previously committed to ensuring that no pensioner relying solely on the state pension would pay income tax on it. However, she did not elaborate on the exact mechanism for this before her resignation.
It is understood that Mr. Healey will deliver on this pledge by raising the tax-free income allowance to £13,036 exclusively for low-income pensioners.
Other rumoured plans are likely to focus more on private pensions rather than the state pension.
A recurring rumour every year is that the government may consider modifying pension tax relief, which effectively boosts savers’ contributions with a top-up from HMRC.
Savers who pay basic rate tax receive a 20 per cent boost to their pension contributions, while higher rate taxpayers enjoy a 40 per cent benefit, and additional rate earners get 45%. The intention is to encourage individuals to save for retirement by allowing income, which would otherwise be taxed, to go virtually untaxed as pension deposits.
One proposed reform would involve limiting this relief for high earners, establishing a flat rate of 20 per cent for all individuals regardless of their income tax bracket. This change could save around £15bn annually, according to some estimates.
There have also been calls from analysts for the chancellor to reverse the previous government’s move to subject salary-sacrificed pension contributions above £2,000 to national insurance starting in 2029. Neither he nor the Treasury has commented on this possibility.
Changes to the benefit system are likely to be announced after the Budget this year, rather than during the event. However, the amount of savings Mr. Healey secures through his policies could influence whether he feels pressure to reduce the welfare bill.
Major changes reportedly under consideration include cuts to disability benefits for younger claimants, as well as limiting eligibility for PIP based on mental health criteria.
Another potential reform could see the health element of universal credit removed for claimants under 25, which affects over 250,000 individuals.
Further options include replacing PIP for those under 25 or overhauling it entirely for all claimants, possibly creating a cutoff at around 50 or 60.
Mr. Burnham has stated that his government will not pursue “crude cuts” in its budget plans aimed at reducing Britain’s benefits expenditure. Nonetheless, he may face resistance from his MPs if he attempts to implement significant spending reductions, similar to the approach taken by his predecessor Sir Keir Starmer in 2025.
The new government’s welfare plans coincide with ambitions to increase the number of young people engaged in work or education. Any reductions in welfare spending are reportedly intended to finance employment support.
The Treasury maintains its longstanding practice of refraining from commenting on Budget speculation ahead of the event.
