Stealth taxes to drag 1.6 million pensioners into paying income tax

1.6 million pensioners are set to be dragged into paying income tax due to the government’s stealth tax freeze by 2027/28, new research commissioned by the Liberal Democrats has revealed.

The House of Commons Library analysis looks at the impact of the Chancellor’s decision to freeze the personal allowance at £12,570, the rate at which people start paying tax. Without the stealth tax freeze, the allowance would have risen to £15,220 in the coming financial year (2024/25) and up to £15,990 in 2027/28.

The analysis estimated that around 1.2 million pensioners will be dragged into paying income tax in 2024/25. By 2027/28, 1.6 million additional pensioners will be paying income tax compared to if the Personal Allowance had been increased in line with inflation.

The latest DWP figures show there are 12.7 million people receiving the state pension. According to the Institute for Fiscal Studies, well over 60 per cent of these pensioners now pay income tax, up from around 50% in 2010. The research found 8.5 million people over the age of 65 were now paying tax on their income, up from roughly 4.9 million in 2010.

Commenting, Liberal Democrat Work and Pensions spokesperson Wendy Chamberlain MP said:

“These stark figures reveal the stealth tax bombshell facing pensioners under this Conservative government.

“Older people who have worked hard and contributed all their lives are now being clobbered with years of unfair tax hikes.

“Jeremy Hunt’s pensioner-punishing Budget will not be forgotten come the next election. The Conservative Party faces a reckoning at the ballot from older voters sick of being taken for granted.”

Supporting Information:

Commons Library Research:

Number of pensioners affected

Due to the personal allowance being frozen at its April 2021 level of £12,570, we estimate that there could be around:

• 100,000-200,000 additional income taxpayers aged 66 years and over in 2022/23
• 600,000-750,000 additional income taxpayers aged 66 years and over in 2023/24
• 1 million – 1.2 million additional income taxpayers aged 66 years and over in 2024/25
• 1.1 million – 1.3 million additional income taxpayers aged 66 years and over in 2025/26
• 1.3 million – 1.5 million additional income taxpayers aged 66 years and over in 2026/27
• 1.4 million – 1.6 million additional income taxpayers aged 66 years and over in 2027/28

Each figure shows the number of additional taxpayers compared with a situation in which the personal allowance increased by CPI inflation, which is the default policy.

The Office for Budget Responsibility report (PDF) that without the annual freezes the personal allowance would have been:

• £14,270 in 2023/24
• £15,220 in 2024/25
• £15,510 in 2025/26
• £15,750 in 2026/27
• £15,990 in 2027/28