- Number being taxed on retirement income will rise above nine million in 2024/5
- This will haul in many who get small additional amounts on top of state pension
- That is double number of taxpaying pensioners when Conservatives took power
Picking the pockets of pensioners on modest incomes is not a good look for any government, let alone a Conservative one that needs the silver vote.
A good deal of attention around the multi-billion-pound stealth tax raid conducted by Rishi Sunak and Jeremy Hunt has concentrated on people who are being pulled into the higher 40 per cent bracket.
Nearly nine million moderately prosperous Britons will be on the higher rate by 2027/8, compared with 3.2m in 2010.
This is because thresholds and allowances have been frozen for six years. So people are pulled into higher bands because our incomes have risen in line with the cost of living – even though we are no better off in real terms.
Estimates of the scale of the raid range from an annual £50billion to £75billion a year from 2027/28, sums that swelled alarmingly from the £8billion initially envisaged, because inflation took off at such a clip.
Picking the pockets of pensioners: The number being taxed on their retirement income will rise above nine million in 2024/5
The level at which people have to start paying basic rate tax is also in the permafrost, so the same effect, arguably even more pernicious, is being felt by those on lower incomes including pensioners.
The number being taxed on their retirement income will rise above nine million in 2024/5, according to experts LCP, hauling in many who receive only small additional amounts on top of the state pension.
That is double the number of taxpaying pensioners when the Conservatives took power in 2010. As The Mail on Sunday reported, millions whose only income is a full state pension are also on course to pay tax within a few years. Our postbag testifies to the sheer rage felt by pensioners who feel they are being thrown under a bus after having worked all their lives.
My colleague Simon Lambert has correctly pointed out that at some stage, a stealth tax stops being stealthy.
I agree that when the amount of tax filched is large enough, voters do start to notice, though I’m not sure everyone is aware of the potential damage inflicted on pensioners in particular.
These are permanent losses, because if and when the freeze eventually comes off, the subsequent increases will be from an artificially low base.
It affects other levies including inheritance tax, where the threshold has been stuck at £325,000 since 2009. What an affront, in a country that claims to aspire to be a property-owning democracy. It will also hit savings. As well as tax-efficient ISAs, everyone has a personal savings allowance. Basic rate taxpayers can earn £1,000 in interest tax free but this falls to £500 for anyone on a higher rate.
Until recently, with interest rates low, the vast majority of people were not troubled by tax on their bank and building society deposits. Now that the best-paying accounts offer returns above 5 per cent, it would take savings of around £10,000 to tip over the £500.
True, we are now talking about better-off pensioners – and younger savers – but in most cases, these nest-eggs have come out of earnings that have already been taxed.
‘Fiscal drag’, the technical name for these sneaky freezes, is a fundamentally dishonest method of taxation, lacking in transparency and riddled with unfairness. It is neither just nor reasonable for the Government to bilk voters, including the elderly, of billions of pounds more than it expected, purely due to unexpectedly high inflation. These are ill-gotten revenues.
At the very least, Jeremy Hunt should raise the basic rate threshold to £15,225 from next April, which is where it ought to be if it had gone up with inflation.