Rachel Reeves has been warned that Labour will be punished at the ballot box if she betrays pensioners with stealth tax hikes in Wednesday’s Budget. The Chancellor is tipped to announce a two-year freeze on tax thresholds when she delivers her crunch fiscal statement at lunchtime.
But the measure could leave pensioners £800 a year worse off and drag another half a million OAPs into the tax net. The move would be even more unpopular than last year’s controversial scrapping of the winter fuel payment and would break Labour’s election manifesto pledge not to raise taxes for working people. She is also expected to unveil a pensions raid worth up to £4billion by clamping down on popular salary-sacrifice schemes.
Tory leader Kemi Badenoch savaged Labour’s record at protecting the livelihoods of pensioners.
She said: “Last year, Rachel Reeves broke her pre-election promise and snatched away the winter fuel allowance, leaving millions of vulnerable pensioners facing an uncertain winter.
“This year, the Chancellor looks set to drag the state pension into income tax for the first time ever, and she’s coming after pensioners’ savings.
“The Conservatives will always stand up for those who have worked hard all their lives and those who do the right thing by saving for the future.
“Instead of making life harder for pensioners, Reeves should be cutting government spending, bringing down the welfare bill and getting Britain working again.”
The stark warning comes as almost 200,000 people backed a petition urging Ms Reeves to ditch the planned measure.
It has been set up to help people like widow Colette Rogers. The 75-year-old is entitled to a proportion of her late husband’s state pension alongside her own.
She found for the first time this year that the combined total took her over the tax threshold by about £1,000.
Her small NHS pension of £37 a month, earned as a GP practice nurse, is also being taxed. Last winter, she lost her winter fuel payment.
Dennis Reed, director of the Silver Voices campaign group for over-60s, said: “Why should the state pension, which has been paid for through a lifetime of National Insurance contributions, be taxed again?”
“Labour seems in denial about the impact of its plans for extending the freeze on thresholds on 13million older people, and millions of retirees in the future.
“If the Chancellor persists on this course, she will be betraying a generations-old compact with the public – that you pay into the system so that you get a decent, and untaxed, state pension when you can no longer work.”
The plan would result in 9.3million pensioners – more than three quarters of all OAPs – paying tax compared to 8.7million currently.
Former pensions minister Baroness Ros Altmann said: “I urge the Chancellor to be very careful to ensure that this Budget does not deliver any nasty surprises for Britain’s pensioners.
“Last year’s winter fuel payment withdrawal caused huge distress among millions of the poorest pensioners, and trying to hide any income reductions by using so-called stealth taxes would not be right.”
She said the Chancellor should do more to help people build better private pensions to top up the low state payment.
“The rumours of capping or scrapping tax reliefs have already been very damaging, and I would like to see the Chancellor announce she will reconsider the unworkable proposals to impose inheritance tax on unused pension funds, which will cause misery and costs for bereaved families.”
Ms Reeves and Sir Keir Starmer have repeatedly promised there would be no increase in taxes for working people during the election campaign and ruled out rises to VAT, National Insurance and income tax.
The Chancellor is desperately looking for ways to plug an estimated £25billion black hole in the nation’s finances.
Treasury figures have hinted at a string of smaller taxes on everything from gambling and taxis to mansions and milkshakes.
But these do not come close to generating the shortfall Ms Reeves is looking to raise.
The much-publicised mansion tax, for example, may raise as little as £400million.
She is also planning to scrap the two-child benefit cap, a move that will drive up Britain’s ballooning welfare bill.
The Chancellor vowed to deliver a Budget that “takes fair and necessary choices”.
She promised it will include action to cut NHS waiting lists, slash debt and borrowing, and drive down the cost of living while fuelling economic growth.
It will include measures to keep prescription costs under £10, freeze rail fares for the first time in 30 years and increase the National Minimum Wage and National Living Wage.
Ms Reeves said: “Today I will take the fair and necessary choices to deliver on our promise of change.
“I will not return Britain back to austerity, nor will I lose control of public spending with reckless borrowing.
“I will take action to help families with the cost of living … cut hospital waiting lists…cut the national debt.
“And I will push ahead with the biggest drive for growth in a generation.
“Investment in roads, rail and energy. Investment in housing, security and defence. Investment in education, skills and training.
“So together, we can build a fairer, stronger, and more secure Britain.”