Labour was last night accused of betrayal after it was revealed that everyone on the full state pension will be forced to pay income tax as early as next year – even if they have no other income.
Millions of Britain’s poorest pensioners face being dragged into an ‘old-age tax trap’ as Chancellor Rachel Reeves desperately attempts to fill a growing black hole in the public finances.
The extraordinary prospect, which threatens to spark a ‘grey revolt’ among furious older voters, arises because the personal allowance – the level at which income becomes taxable – is stuck at £12,570 at least until 2028.
But the state pension, which pays 12.9 million men and women over the age of 66 up to £11,973 a year, is on track to breach that limit before then because of higher-than-expected growth in wages – especially in the public sector.
Under the triple-lock system, the state pension increases by the rate of inflation, annual earnings growth or 2.5 per cent – whichever is the highest.
If average earnings continue to grow at their current rate of 5.2 per cent, next year’s state pension will rise above the income tax threshold for the first time since it was introduced more than a century ago.
This will force pensioners who rely entirely on the state pension to pay the basic tax rate of 20 per cent on any amount above the personal allowance limit.
The exact figure will be confirmed later this year. The hardest hit will be those who retired after 2016 and have paid a full 35 years of National Insurance contributions.
Millions of Britain’s poorest pensioners face being dragged into an ‘old-age tax trap’ as Chancellor Rachel Reeves (above) desperately attempts to fill a growing black hole in the public finances
The extraordinary prospect, which threatens to spark a ‘grey revolt’ among furious older voters, arises because the personal allowance – the level at which income becomes taxable – is stuck at £12,570 at least until 2028 (Stock Image)
Next year’s state pension could rise above the income tax threshold for the first time since it was introduced more than a century ago, forcing pensioners who rely entirely on it to pay the basic tax rate of 20 per cent on any amount above the personal allowance limit (Stock Image)
Last night Dennis Reed, director of Silver Voices, a campaign group for pensioners, accused Labour of a ‘mean approach’ and betraying the triple lock pledge it made at last year’s election.
‘If triple lock increases start being taxed it obviously is a betrayal because Labour promised to keep the triple lock at the existing formula for the whole of this Parliament. It’s a rather sneaky way round of undermining the triple lock.’
It comes days after Ms Reeves was seen openly crying while sitting next to Keir Starmer in the House of Commons.
An extraordinary Government U-turn over welfare reform last week, in the face of a Labour backbench rebellion, has blown a £5 billion black hole in the Chancellor’s financial plans.
Combined with weak economic performance, Ms Reeves may have to impose further punishing tax hikes, possibly as high as £30 billion, later this year.
Mr Reed accused the Treasury of an ‘anti-pensioner approach’. He said pensions minister Torsten Bell called for the triple lock to be phased out when he ran the Resolution Foundation think-tank.
It comes days after Ms Reeves (above) was seen openly crying while sitting next to Keir Starmer in the House of Commons
Shadow Chancellor Sir Mel Stride last night told The Mail on Sunday: ‘Labour have shown where their priorities lie. Last winter, they deprived millions of vulnerable pensioners of their winter fuel payments.
‘Next year they will start taxing people who rely on the state pension as their only income in retirement.’
He added: ‘At the election last year the Conservatives promised to protect the state pension from being dragged into tax – Labour chose not to match that commitment.
‘They claim to be protecting pensioners through the triple lock, but this stealth tax will erode its value.’
It is thought the pensioner ‘tax trap’ could hit Labour at the polls. More than 126,000 older people signed a petition urging Ms Reeves to stop pensioners reliant on the state pension being dragged back into the tax system.
