Pensioners’ incomes hit by ‘stealth’ tax raid

Freedom of Information data show massive rise in burden levied on elderly in past 13 years of Tory rule

THE number of pensioners paying higher rates of income tax has increased by 70 per cent in the past decade, figures released under freedom of information (FOI) laws have revealed.

In 2012, some 425,000 people aged 65 and over paid either the higher rate or additional rates of income tax but that soared to 727,000 in 2022 and critics say the surge amounts to a “stealth” raid on the elderly by successive Tory prime ministers and chancellors since taking office in 2010.

The figures are not published. The breakdown was only made available after Steve Webb, an ex-minister for pensions, submitted a formal FOI request and shared the results with The Daily Telegraph.

The higher rate of tax is currently 40 per cent and the additional rate is 45 per cent. The basic rate is 20 per cent. Annual payouts from state and private pensions are taxed as well as other income streams such as rents from second homes or payments for consultancy work.

In 2012, George Osborne, as chancellor, effectively abolished the extra taxfree allowance that people aged 65 to 74 received, which amounted at the time to around £2,400.

During the decade since thresholds – the point at which earners pay higher tax bands – have not risen in line with inflation, meaning more have been dragged into paying more tax.

The trend of Britons increasingly working later in life, including raising the pension age from 65 to 66, is also likely to have played a part.

Mr Webb is partner at the pensions consultants LCP and was a Liberal Democrat MP who served as pensions minister during the Tory-lib Dem coalition.

He said: “The majority of people in retirement can now expect to have tax deducted from their pensions.

“This proportion is set to increase as tax thresholds fail to keep pace with inflation-linked pension increases in the coming years.

“In addition, the highest rates of tax are now biting more heavily on pensioners, with nearly one in 10 taxable pensioners paying income tax at 40 per cent or above.

“Anyone planning for their retirement needs to allow for the fact that income tax is likely to take a chunk out of anything they have put by.”

Despite the Conservatives being in No10 for approaching 13 years the party of traditionally low taxes has taken the revenue burden to record highs.

Not since the years after the Second World War has the amount of tax taken by the Treasury in each year, as a proportion of overall economic output, been so high.

Rishi Sunak echoes the argument of his predecessor, Boris Johnson, when challenged on the trend, saying the Covid pandemic forced up spending that had to be funded via taxation.

Liz Truss’s attempt to announce major tax cuts at the same time as inflation was soaring backfired last autumn, triggering a surge in interest rates that toppled her premiership.

A Treasury spokesman said: “Our priority is to restore economic stability in the fairest way possible, which is why those with the broadest shoulders – from businesses to individuals – will bear more of the burden to strengthen public finances.

“The vast majority of people do not

‘Anyone planning for their retirement must allow for income tax taking a chunk out of what they’ve put by’

pay the higher rate and we have lifted millions out of paying tax altogether by consistently raising personal tax thresholds over the last decade.

“We have supported over-65s by delivering on our promise to increase the state pension in line with rising prices and we have a plan that will help to more than halve inflation this year so that everyone’s incomes go further.”