DWP Pensions: Stealth Tax warning as payments increase

The Liberal Democrats claimed more than one million pensioners could be paying income tax by 2027-28 due to the Government’s stealth tax freeze.

According to new research commissioned by the party, when the stealth tax freeze expires in 2027-28, the tax threshold will have risen to £15,990.

The personal allowance threshold, the rate at which people start paying tax, has been frozen at its April 2021 level of £12,570.

Chancellor Jeremy Hunt (Image: Yui Mok/PA Wire)

As per analysis from the House of Commons Library, an estimated 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.

Liberal Democrat Treasury spokesperson Sarah Olney 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.”

On Monday, it was revealed that HM Revenue & Customs is concerned that its customer service helpline will soon be overwhelmed by the millions of people across the UK being hit by stealth taxes.

A Treasury spokesman defended the decision on the freezing of tax thresholds.

They told the Telegraph: “After providing hundreds of billions of pounds to protect lives and livelihoods throughout the pandemic and Putin’s energy shock, we had to take some difficult decisions to help pay it back.

“Now the economy is turning a corner, we have cut National Insurance by a third, meaning that, coupled with above-inflation increases to personal tax thresholds since 2010, we have saved the average earner over £1,500 compared to what they otherwise would have paid.”

Pensioners set for £900 increase

Pensioners will see their state pension increase by up to £900 from this week, as an announcement made at last year’s autumn statement comes into effect.

Chancellor Jeremy Hunt confirmed that the triple lock on pensions would be honoured, with state pensions set to rise.

Under the triple lock – which guarantees an increase in line with average earnings, inflation or 2.5 per cent, whichever is highest - pensions will increase by 8.5 per cent next month.

He told MPs: "The triple lock has helped lift 250,000 older people out of poverty since its inception in 2011.

"It has been a lifeline for many during times of inflation.

"We honour our commitment to the triple lock in full. We will increase the new state pension by 8.5 per cent, worth up to £900 more a year."