Budget Move to Drag Over a Million Pensioners into Tax Net
Chancellor Rachel Reeves has confirmed a significant extension to the freeze on income tax thresholds, a move that will force approximately one million additional pensioners to pay income tax. Despite having criticised similar measures as detrimental to 'working people' just last year, the Chancellor announced that the £12,570 basic rate threshold will remain frozen until the 2030/31 tax year.
This decision, unveiled in her recent Budget statement, means the current income tax bands for England, Wales, and Northern Ireland will stay unchanged until April 2031. The Chancellor told MPs she was 'asking everyone to make a contribution' to 'break the cycle of austerity', while denying any breach of election promises.
Financial Impact and Wider Consequences
The extended income tax freeze is projected to raise £7.6 billion in revenue by 2030. When combined with a freeze on the National Insurance Contributions (NICs) secondary threshold, the total revenue increases to £8.3 billion.
Analysis suggests this stealth tax raid will result in a total of 10 million retirees paying income tax. The Office for Budget Responsibility (OBR) forecasts that an additional 780,000 people will be pulled into paying income tax in 2029/30, with another 920,000 dragged into the higher tax rate bracket.
Former pensions minister Sir Steve Webb highlighted the profound shift, stating: 'Between now and the end of these freezes, more than a million extra pensioners will be dragged into the tax net. The norm in retirement will be having to deal with HMRC.'
Criticism and Broken Promises
The announcement faced immediate backlash, with critics accusing the Chancellor of breaking Labour's manifesto commitment. Shadow chancellor Sir Mel Stride declared Ms Reeves's position 'untenable', arguing she had 'clearly' broken a promise not to extend the threshold freeze.
The Institute for Fiscal Studies (IFS) supported this view, with Director Helen Miller stating the move, which includes freezing national insurance thresholds, 'breaches the Government's manifesto tax promise' and 'represents a tax rise on working people'.
Charity Age UK branded the decision 'deeply regrettable'. Charity director Caroline Abrahams expressed concern for older people on 'low and modest incomes who need all the help they can get'.
The Treasury has stated it is looking to simplify the administrative process for affected pensioners, but confirmed they will not be exempt from the tax bill. This could mean many retirees face the prospect of completing tax returns.
In a separate measure, the Chancellor also announced a £7.4 billion raise from working graduates by freezing the student loan repayment threshold for Plan 2 loans at £29,385 for three years from April 2027.
