Three-quarters of state pension rise wiped out by stealth taxes as Hunt takes “bolt cutter to the triple lock”

6 Apr 2024

EMBARGO: 22.30 Sunday 7th April

Jeremy Hunt’s stealth taxes on pensioners will wipe out 77% of today’s (8th April) increase in the state pension
Pensioner penalty Budget last month sees an extra 1.6 million elderly people paying income tax
Stealth taxes on individual pensioners amount to £530 hit a year

Jeremy Hunt’s stealth taxes will wipe out over three-quarters of today’s increase to the state pension (8th April), the Liberal Democrats have revealed, accusing the Chancellor of taking a “bolt cutter to the triple lock”.

The basic state pension is set to increase by £692 a year due to the triple lock. However, a typical basic rate tax-paying pensioner will face a £530 a year hit due to the government’s freezing of income tax thresholds, meaning 77% of the rise in the pension is being swallowed up in stealth taxes.

Separate Commons Library research commissioned by the Liberal Democrats has found around 1.6 million pensioners will be dragged into paying income tax by 2027-28 as a result of the freezing of income tax thresholds.

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

“Jeremy Hunt has taken a bolt cutter to the triple lock. This Conservative government is picking pensioners’ pockets to try and fill the black hole caused by their disastrous economic policy.

“These are people who have played by the rules their whole lives, paid their taxes and contributed so much to our society. They expect that in their older years the government would look after them, not place even more financial hardship upon them during a cost of living crisis.

“Millions of pensioners across the country are sick to the back teeth of being taken for granted by the Conservative Party. Rishi Sunak and Jeremy Hunt should expect a reckoning at the ballot box as pensioners abandon this Conservative government in their droves.”

ENDS

Notes to Editors:

Analysis of stealth taxes impact on the triple lock can be found here.

Data on the additional pensioners paying income tax:

For 2024/25, the Government says that pensioners whose sole income is the basic or new State Pension will have an income below the personal allowance. Pensioners being brought into income tax will therefore have other income beyond the basic or new State Pension.

The below estimates are fairly approximate and have been calculated using UKMOD, which is a policy simulation tool. There is more on the methodology below.

Number of pensioners affected

Due to the personal allowance being frozen at its April 2021 level of £12,570, the House of Commons Library estimates 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

Notes on methodology

The Library’s analysis uses the UKMOD policy simulation model version B1.12 developed and maintained by the Centre for Microsimulation and Policy Analysis (CeMPA) at the University of Essex Institute for Social and Economic Research (ISER), supported by the Nuffield Foundation, with underlying data on household incomes and circumstances drawn from the 2021/22 Family Resources Survey, adjusted using data from the DWP’s Households Below Average Income, and uprated for later years using the OBR’s March 2024 forecasts. The UKMOD model is explained in more detail in CeMPA’s latest country report.

The Library has made no attempt to assess the potential effect of behavioural response of people when faced with different tax thresholds.

Resolution Foundation

According to the Resolution Foundation, around 8 million pensioners (roughly 70% of all UK pensioners) are taxpayers, losing from freezes to Income Tax thresholds but not benefitting from NI changes (because they are already exempt from paying NI). Resolution Foundation research can be found here.