Reeves vows state pensioners won’t have to pay tax despite alarm over Budget changes
Rachel Reeves insisted people who only receive state pensions will not have to pay tax, despite fears that the decision to freeze tax thresholds in the Budget could leave pensioners liable to pay income tax.
The Chancellor has promised that the Treasury will not go after retirees’ “small amounts of money” and that they will not pay any tax during this parliament.
Generally, retirees whose only income is the state pension do not have to pay any income tax because the full state pension, currently £230.25 per week, falls below the personal tax allowance of £12,570 per year.
But for the first time since its introduction, the new state pension is set to exceed the personal allowance in the 2027/28 tax year under the triple lock policy, which guarantees it will rise by the greater of the inflation rate, average earnings growth or 2.5 per cent.
This comes after the Treasury announced plans to freeze income tax thresholds until the 2030-2031 tax year; The move will raise £7.6 billion in income by 2030 and force millions of people to pay higher income tax.
This means people, including pensioners, will be pulled into higher tax brackets as their income rises in line with inflation.
But when asked in an interview with monetary expert Martin Lewis whether pensioners would have to fill out a tax return, the chancellor said: “If you only have a state pension and no other pension, we will not force you to fill in a tax return.
“I make this commitment on behalf of this parliament.”
He added: “You’re right, 2027 looks like a year to go by. As we speak, we’re working on a solution to make sure we’re not going after small amounts of money.”
Asked whether state pensioners would have to pay any tax, Ms Reeves said: “They won’t have to pay any tax in this parliament, furthermore I can’t make any commitments on that, but we’re looking at a simple workaround at the moment.”
This week the chancellor bet his political future on a £26bn tax raid on the middle classes in his make-or-break second budget after poor economic forecasts left holes in previous spending plans.
Tax rises also need to cover increased welfare spending, with Ms Reeves announcing the removal of the two-child benefit cap, which is expected to lift 450,000 children out of poverty.
Abandoning manifesto-busting income tax rise plans, the chancellor has opted for a series of smaller tax rises to pay for government spending and create a bigger buffer against borrowing rules.
These include a new pay-per-mile tax on electric vehicles, increased taxes on online betting and a “mansion tax” on homes worth more than £2 million.
However, leading economic think tank Solution Foundation warned that the decision to extend the freeze on tax thresholds would affect low-income earners.
Their analysis of Wednesday’s budget says that by 2030/31, people earning less than £35,000 a year will pay more than if the Chancellor had increased the basic rate by 1p.
The Chancellor also continued to face accusations of violating Labour’s election promise not to increase taxes on workers after he decided to freeze tax thresholds and introduce national insurance on some pension contributions.
