Stealth tax raid on 1.6 million pensioners
Tories ‘will pay at the ballot box’ as more retirees than ever dragged into income levy
UP TO 1.6million more pensioners will be paying income tax within four years as a result of Tory stealth raids, analysis has shown.
As many as 9.3million older people will be paying the tax by 2028 after the Government froze the threshold at which people start to pay.
Currently, 8.5million pensioners pay income tax, but analysis by the House of Commons Library has found that the frozen threshold means an extra 1.6million people will pay the tax than if it had risen with inflation since 2021.
It means about an extra 850,000 pensioners paying income tax in 2028 than this year – taking the number to 9.35million, the highest on record. In 2010, when the Tories came to power, just 4.9million paid income tax.
Last night the Liberal Democrats, who commissioned the research, said voters would punish the Conservatives at the ballot box. Sarah Olney, the party’s Treasury spokesman, said: “These stark figures reveal the stealth tax bombshell facing pensioners under this Conservative government. Older people who have worked hard and contributed all their lives are now being clobbered with years of unfair tax hikes.
“Jeremy Hunt’s pensioner punishing Budget will not be forgotten come the next election. The Conservative Party faces a reckoning at the ballot from older voters sick of being taken for granted.” Pensioners were previously hit in the pocket because they did not benefit from National Insurance cuts in the previous two budgets.
Older voters, who are more likely to see the reduction of immigration as a priority, have recently been turning away from the party over Rishi Sunak’s failure to deal with small boats. It has led to a large swing among pensioner voters towards Reform.
Also, half of landlords are over 55 and many may further lose out under Michael Gove’s decision to strip tax relief from owners of short-term lets.
The threshold at which people start to pay income tax was frozen at £12,570 in 2021 by Mr Sunak, and the freeze was extended to the end of 2028 by Jeremy Hunt.
It means that, every year, more and more older people are having to pay the levy because their income, from state and private pensions, increases along with inflation – known as fiscal drag. Without the stealth tax freeze, the allowance would have risen to £15,220 in 2024-25 and up to £15,990 in 202728. According to the Institute for Fiscal Studies, well over 60 per cent of over65s now pay income tax, up from about 50 per cent in 2010. The House of Commons Library research shows that this total will increase still further over the next four years.
It found that in this financial year, 2024-25, up to 1.2million more pensioners will pay income tax than if the threshold had been increased along with prices since 2021. By 2027-28, this total will have risen to between 1.4million and 1.6 million.
The Library said the estimates were “fairly approximate” and were calculated using a policy simulation tool called UKMOD, which uses Office for Budget Responsibility forecasts of household income in future years.
It emerged yesterday that bosses at HM Revenue & Customs were afraid that its customer service helpline would be overwhelmed owing to the millions of people being hit by stealth taxes. They warned ministers they were already struggling to cope with answering millions of calls, and said that the freezing of tax bands would increase the number of queries and place an even greater strain on resources.
Baroness Altmann, the former Tory
pensions minister, said: “I do think it is worrying that so many more pensioners could be dragged into the tax net as the state pension may soon rise above the frozen threshold. Most of those tipped into tax will be poorer pensioners with little more than their state pension to live on.
“Most of them will be totally unaware of any liability and will never have filled in a tax return in their life. They are then at risk of being hit with fines and penalties for not paying a tiny amount of tax that they didn’t even know about.”
John O’connell, chief executive of the Taxpayers’ Alliance, said: “Taxpayers young and old are being hammered by frozen thresholds. Many pensioners will have never filled in a tax return, yet their already precarious budgets are now being devastated by a record tax burden. Ministers must use every opportunity available to them to give relief to households.”
A Treasury spokesman defended the decision to freeze tax thresholds.
“After providing hundreds of billions of pounds to protect lives and livelihoods throughout the pandemic and Putin’s energy shock, we had to take some difficult decisions to help pay it back,” he said.
“Now the economy is turning a corner, we have cut national insurance by a third, meaning that, coupled with above-inflation increases to personal tax thresholds since 2010, we have saved the average earner over £1,500 compared to what they otherwise would have paid.”