A million more pensioners will be hit to help pay for Rachel Reeves’ benefits boom

Taxes to reach ‘historic’ levels to help fund record welfare benefits; There are warnings that these taxes may rise even higher due to the war in the Middle East.

Rachel Reeves insisted Labor’s plans were working as she delivered her annual spring statement on the economy on Tuesday.

But the tax burden will reach a ‘historic high’ by the end of the decade, following a series of punitive tax increases imposed by the Chancellor, the Office for Budget Responsibility (OBR) has warned in a new analysis.

The economic watchdog said another million low-income pensioners will be dragged into the tax system by the end of the decade due to a long freeze on tax thresholds.

Dennis Reed, of campaign group Silver Voices, called on the Chancellor to lift the freeze, saying it would have an ‘immediate impact on the incomes of millions of people who are struggling to cope right now’.

He added: ‘Despite the Labor Party making a good speech about the crisis making the cost of living their top priority, they are using their tax-raising powers to make the situation worse.’

At the same time, Britain’s bloated aid bill is expected to continue growing after Labor abandoned reform efforts last year.

The OBR said welfare spending will rise by £18bn this year alone, with further increases planned each year. By the end of the decade this figure is expected to reach £400bn, an increase of more than £70bn.

Sir Jeremy Hunt (pictured on 9 January 2025) called on Labor to cut benefits rather than raise taxes

The financial watchdog cut its growth forecast for this year before taking into account the damaging impact of the Middle East crisis on inflation and the economy; He said it would be ‘absolutely bad’.

It now expects gross domestic product (GDP) to increase by just 1.1 percent this year; The fall from the previous forecast of 1.4 per cent is a serious blow for the Chancellor, who once asked people to judge him on his record on growth.

Paul Dales, chief UK economist at consultancy Capital Economics, said the OBR forecasts apparently provided the Chancellor with ‘a bit more money’ in the autumn budget that could be strangled by events in the Middle East.

He added: ‘The economy may therefore point to further tax increases.’

Reform’s Treasury spokesman, Robert Jenrick, said Ms Reeves ‘appears to be a rogue landlord who continues to squeeze tenants with increasingly higher rents’.

In a low-key update, the Chancellor insisted Labor had ‘restored economic stability’ and was finally starting to tackle inflation; This was needed more than ever, he said, given the Middle East crisis.

In a warning against a lurch to the Left following last week’s by-election defeat by the Greens, she urged Labor to resist ‘the temptation of easy answers and reckless borrowing’.

But former chancellor Sir Jeremy Hunt said tax levels had already been raised so high that it was damaging the economy.

Sir Jeremy said the £66bn tax increases Ms Reeves implemented in her first 18 months in office were equivalent to £2,300 per household.

Sir Jeremy called on him to target benefit cuts instead, saying: ‘If the real concern is the cost of living, wouldn’t the biggest mistake be not increasing taxes by £66bn, the equivalent of around £2,300 per household?

‘If this money is needed for public services, almost all of it (£54bn in fact) could be achieved by reducing the welfare bill to 2019 levels.

‘Is it sustainable to keep increasing taxes on working people to provide more benefits to non-working people?’

Ms Reeves defended the unprecedented tax raid and said Labor was ensuring ‘those with the broadest shoulders pay higher taxes’.

But the OBR has warned that taxes are now so high that Labor risks deterring people from working, saving, investing and employing.

The watchdog said Britain’s tax collections would rise to 38.5 per cent of gross domestic product (GDP), the highest post-war level. This year’s figure, 36 percent, is a full six points higher than before the pandemic.

And the Chancellor’s £25bn crackdown on employers’ national insurance will lead to lower wage growth this year, squeezing the cost of living further, he said.

In another bleak assessment, the OBR predicts unemployment will rise to 5.3 per cent, equal to the worst levels seen during the pandemic.

The OBR’s David Miles said ‘alarming’ youth unemployment figures had ‘some way to go’, partly spurred by higher minimum wages and discouraging employers from hiring young people.

Ministers are still mulling whether to go ahead with manifesto plans to equalize the minimum wage for under-21s with the main adult wage, amid warnings it would deepen the crisis.

The Institute of Directors, a leading business group, criticized the Chancellor’s spring announcement, saying there was ‘still no plan for growth’.

Ms Reeves insisted Labor had the ‘right plan’ to finally cut both living costs and the government’s devastating borrowing costs, which currently cost more than £100bn a year in interest payments alone.

“My plan is correct,” he told lawmakers. ‘If we continue on this path, I have no doubt how great the rewards could be.’

But shadow chancellor Sir Mel Stride said Ms Reeves was ‘out of her depth and quickly went off the rails’.

Sir Mel highlighted the impact on thresholds of the secret tax freeze that the Chancellor extended for another three years in the Budget.

‘He acted like there was nothing to see and now we know why,’ he said. ‘By freezing tax thresholds, it is quietly pushing a million extra pensioners into income tax.’

Ms Reeves said last year she would move to ensure those surviving solely on the New State Pension are exempt when they exceed the £12,570 tax threshold next year. Treasury sources said officials were still working on a plan. But it is not expected to help those with even the most modest private pensions.