Hundreds of thousands of state pensioners across the UK are facing significant tax increases, with some potentially seeing their bills rise by over £2,500, following changes foreshadowed by Chancellor Rachel Reeves.
The Budget Announcement and Its Implications
Labour Chancellor Rachel Reeves has explicitly refused to rule out tax rises in the upcoming budget, stating she must “deal with the world as I find it, not the world as I might wish it to be.” This marks a potential breach of the party's manifesto commitment not to raise the main rates of income tax.
Ms Reeves attributed the need for such measures to the UK's public finances being in a worse state than anticipated, a situation she blames on “years of economic mismanagement.”
Who Will Be Affected by the Tax Change?
The proposed income tax increase would have a direct impact on nearly nine million state pensioners. The most significant financial blow would be felt by the 124,000 pensioners who are additional rate taxpayers, meaning they earn £125,140 or more annually.
For these individuals, the financial mechanics are stark. Once income reaches the £125,140 threshold, the £12,570 tax-free personal allowance is removed. They currently pay 20% tax on their first £50,270 of income and 40% on earnings up to £125,140. A rise of two percentage points in these rates would generate an extra annual bill of £2,502.80. Furthermore, any earnings over £125,140 would be taxed at 47%.
Expert and Advocacy Group Reactions
Adam Cole, a representative from the wealth management firm Quilter, commented on the situation. “With fiscal drag pulling more retirees into higher bands, the Budget could tighten the squeeze on affluent pensioners even further,” he said.
Cole also suggested that such a change might be seen as more politically acceptable than complex adjustments to other taxes or stealth changes.
The proposal has drawn sharp criticism from groups representing older citizens. David Luxton of the pensioner pressure group Later Life Ambitions voiced strong opposition.
“Many in later life live on a fixed income, and this kind of broad increase fails to recognise that pensioners often face rising costs. It effectively penalises people with an extra charge for ageing,” Luxton stated.
He emphasised the perceived injustice of the move, adding, “Pensioners have paid their dues through a lifetime of work and taxation. Asking them to shoulder yet another rise, when many already pay the highest rate, is unjust. Those who’ve contributed the most shouldn’t be punished again simply for having saved responsibly.”
