Chancellor Rachel Reeves is said to be considering raising income tax, in a move that would hit millions of pensioners – and some could face bills of up to 2,500
Labour is claimed to be drawing up plans for an income tax raid that would hit millions of pensioners, with some facing extra bills of up to £2,500. Chancellor Rachel Reeves is reported to have informed the Office for Budget Responsibility that raising personal taxation is among the ‘major measures’ being considered for her Budget later this month.
If true, this would mark the first increase to income tax in around 50 years – and could see pensioners, landlords and the self-employed footing the bill, as they do not benefit from cuts to National Insurance.
Under one option reportedly being looked at, a 2p rise in income tax could be offset by a 2p cut in National Insurance on earnings between £12,571 and £50,270. That would mean most working taxpayers see little change to their take-home pay – but pensioners, who pay no NI, would lose out.
Analysis by AJ Bell suggests workers earning £100,000 could pay £1,000 more in tax a year, while those on over £125,140 would lose £1,700. For additional-rate pensioners, the hit could reach £2,502.80. Almost nine million state pensioners would face higher tax bills, including 124,000 who pay the top 45% rate.
Ms Reeves has said those with the “broadest shoulders” should pay their fair share. But critics argue her plans amount to a stealth raid on older savers. Labour’s manifesto ruled out increasing VAT, NI or income tax, but reports suggest the Chancellor is preparing to break that pledge to plug a growing black hole in the public finances following weaker growth forecasts and higher borrowing costs.
The move would come on top of other measures seen as targeting retirees. In her fiscal statement, Ms Reeves announced that unspent pensions will fall within the scope of inheritance tax from April 2027, meaning death duty bills could reach 67% of leftover savings.
She also confirmed changes to the winter fuel payment, which is now taxable – meaning higher earners could end up paying it back. Those under 80 receive £200 and those over 80 get £300, but anyone earning more than £35,000 will lose out through the tax system.
Further proposals have included cutting the tax-free pension lump sum from £268,275 to £100,000 – a move urged by the Fabian Society, a Labour-linked think tank, which claimed the current rules are “too generous and clearly unfair.”
A Treasury spokesman said: “We do not comment on speculation around changes to tax outside of fiscal events.”
