The Chancellor has unleashed chaos (again). Pensioners will pay.
Chancellor Rachel Reeves is out of control and pensioners will foot the bill (Image: Getty)
Rachel Reeves has lost control. For two weeks, she dropped heavy hints that she’d hike income tax in her upcoming Budget, softening up the public for a breach of Labour’s biggest manifesto promise. Yesterday, we got another leak from the Treasury, and yet another U-turn. It turns out she won’t hike income tax after all.
Reeves can’t even deliver good news without causing a crisis. Markets panicked. Gilt yields jumped as bond investors realised the Chancellor has gone off the rails. The pound fell and FTSE 100 slumped as traders scrambled to work out what was going on. She tried to blame improved fiscal forecasts for her change of heart, but others sensed a panic move by Keir Starmer, to avert a leadership challenge from Wes Streeting.
Whatever the reason, the Chancellor has blown up her own Budget. Again. It’s painful to watch.
Reeves may have ruled out hiking income tax by 2p, but that doesn’t mean our income tax bills won’t rise. Instead, she’ll extend the freeze on income tax thresholds from 2028 to 2030. Incredibly, that means thresholds will have been frozen for nine years in total. Paul Johnson, former head of the Institute for Fiscal Studies, said the freeze is “arguably the biggest tax rise in history”. He noted that in the 1980s only 3.5% paid higher-rate tax. Today, it’s heading towards 25%.
Reeves may go even further. There’s talk she could slash the higher-rate £50,270 tax band to £45,000, clearly breaching Labour’s manifesto pledge (for which both Reeves and Starmer should resign).
Extending the tax freeze will obviously hammer “working people”, whatever Reeves may claim, but pensioners will feel the full force of it too. A staggering nine million pensioners already pay income tax, double the number just a few years ago. By 2027, anyone on the full new state pension will automatically pay tax on it, due to the frozen £12,570 allowance.
More than three million pensioners also pay income tax on their savings interest because the Personal Savings Allowance has also been frozen since launch in 2016. If Reeves halves the Cash ISA allowance to £10,000, as widely rumoured, more older savers will be dragged into HMRC’s clutches.
Pensioners will pay in plenty of other ways too. This could turn into a full-on onslaught.
By ruling out raising income tax, Reeves has opened the door to a whole arsenal of alternative taxes.
This means taking more from people’s pensions, savings, homes and inheritances. Ultimately, that will hit older people far harder than any straightforward income tax rise.
Council tax revaluation and new levies on higher-value homes will be sold as a “mansion tax”, but once the system is built it won’t stop at the top end. It’ll spread.
Retired homeowners could face bills so large they need to defer them until death, turning council tax into inheritance tax by stealth.
Inheritance tax may also tighten its deathly grip, with the seven-year rule extended, gifting limits obliterated, and the “gifts out of surplus income” option dumped.
The truth is almost everyone will pay more, except benefit claimants, who’ll be spared while those who work and save are rinsed yet again.
Starmer and Reeves are now at the mercy of hard-left backbenchers who won’t countenance a single cut in spending but are happy to hike every tax they can find.
Nobody knows what she’ll do from one hour to the next – least of all the Chancellor herself. But one thing is clear. Pensioners will pay.
