Healey will shield the poorest pensioners from income tax at an estimated £500m a year and lift the minimum wage
The Budget will stop the full state pension becoming taxable when it rises in April, while an above-inflation minimum wage increase is seen as a factor for the Bank of England.
Healey will shield low-income pensioners from income tax in the Budget1. The change is needed to prevent the full, flat-rate state pension from becoming liable for income tax after it rises in April1.
Shielding the poorest pensioners is estimated to cost £500m a year2. The estimate assumes earnings follow their historical path of 3.5% a year and inflation stays close to the Bank of England’s 2% target, Sir Steve said in setting out the costing2.
Without the change, the April rise would push the full state pension into the income tax net1. Healey is also set to announce an inflation-busting rise in the minimum wage3.
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Why it matters to investors
The minimum wage decision feeds directly into monetary policy. James Smith, an economist at ING, said it would be a key factor for the Bank of England next year3. Smith’s comments referred to the Low Pay Commission’s recommendation3. A rise above inflation adds to wage pressure that the central bank must weigh when setting rates3.
The pension measure is a recurring cost rather than a one-off2. Its estimated £500m a year depends on earnings and inflation staying close to the assumptions behind it2.
Currency markets are positioning ahead of the statement. Sterling dropped against the euro and the dollar ahead of the Budget4. Another view held that sterling was heading into the Budget on a high, a reminder that the pound’s starting point is contested5.
The Budget lands in a busy week for central banks, with decisions due from the Bank of Japan, the Reserve Bank of New Zealand and the Bank of Canada4. The first estimate of euro zone third-quarter GDP is also due, and Microsoft and Alphabet report on Wednesday5.
What to watch
The size of the minimum wage increase is the figure most likely to move expectations for interest rates3. The pension shield’s cost will be judged against the earnings and inflation path it assumes2.
Sterling’s reaction on the day will show whether investors see the package as fiscally credible4,5. For pensioners on low incomes, the measure means no income tax on the full state pension after the April rise1. The pension change itself is designed to keep the state pension out of income tax after April1.
Sources
- Healey to shield low-income pensioners from income tax in the Budget, bbc.co.uk (2026-10-26)
- Shielding poorest pensioners from income tax ‘to cost £500m a year’ - The Telegraph, telegraph.co.uk (2026-10-26)
- Healey to announce inflation-busting minimum wage rise - The Telegraph, telegraph.co.uk (2026-10-26)
- Sterling drops against euro and dollar ahead of UK budget | Reuters, reuters.com (2026-10-26)
- Sterling heads into Autumn Budget on a high - Ebury, ebury.com (2026-10-26)
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