Rachel Reeves unleashes cruel ‘stealth tax grab’ bombshell on 1 million more pensioners

Poorer pensioners should not be made to pay the price for this Labour government’s economic failure, critics have warned.

Rachel Reeves leaving Downing Street (Image: Getty)

An extra one million of the poorest pensioners will be dragged into paying income tax under Labour’s “stealth” raid on their State Pensions. Rachel Reeves has massively underestimated the number of retirees who will be hit by her freeze on the amount someone can receive before the taxman starts clawing in cash, according to a Treasury watchdog.

The details were buried in documents released as the Chancellor gave her Spring Statement that revealed Britain’s record tax burden will rise higher than previously expected. Shadow Chancellor Sir Mel Stride said: “Rachel Reeves pretended there was nothing to see – and now we know why. By freezing tax thresholds, she’s quietly dragging up to a million extra pensioners into income tax. A stealth tax on dignity in retirement. The Conservatives will always stand up for those who’ve earned it.”

Ms Reeves announced the amount that triggers an income tax bill would remain at £12,570 until 2031 when she set out her Budget in November.

It means older people whose only income is the State Pension will be dragged into paying income tax on the payments for the first time.

Economic forecasts from the Office for Budget Responsibility show an additional one million people on the State Pension will be brought into paying income tax by 2030/31.

The value of the state pension has increased over the last few years because of the triple lock – which sees it rise by either 2.5%, inflation or wage growth each year.

Successive chancellors have frozen the threshold at which people start to pay tax, meaning the value of the state pension will exceed the zero rate personal allowance from 2027/28.

At the last election, the Conservatives promised a “triple lock plus”, which included a pledge to introduce a tax break to stop those who only receive the State Pension from being dragged into paying income tax.

Former pensions minister Sir Steve Webb, a partner at consultant LCP, said: “The prolonged freeze in the tax-free allowance, coupled with significant increases in state pension rates, has dragged millions more pensioners into income tax.

“But we now see that HMRC have under-estimated quite how many people we are talking about.

“It seems that by 2030 there could be a million more taxpaying pensioners than the Government had previously expected.

“This strengthens the case for a full review of the starting point of income tax, especially for pensioners, many of whom will be dragged into tax for the first time over the coming years”.

Chancellor Rachel Reeves is dragging 1 million more pensioners into income tax (Image: PA)

Dennis Reed, director of over 60s campaign group Silver Voices, said: “Older people are very worried that the Middle East War is going to recreate the energy crisis of 2021-23 when our standards of living suffered a permanent decline because of the double whammy of rising energy and food prices.

“Instead of trotting out a pre-prepared speech, the Chancellor could have recognised the changed situation and reassured pensioners that the Government would provide extra financial support this winter, if necessary.

“The opportunity was ducked and older people were as usual not mentioned once in the speech.”

The OBR document said that the updated figures do not significantly change the revenue generated from the move because lots of those set to be brought in to tax will pay relatively small amounts.

It said: “Much of this population is projected to pay only very small additional amounts of tax due to the freezes, so this only increases the yield of the November 2025 Budget measures by £0.1 billion in 2030-31.

“The Government has stated that its intention is that individuals whose only source of income is the basic or new SP without any increments will not pay any income tax over this Parliament, and that it will set out more detail this year. However, final details of this policy have not yet been announced.”

The OBR will take any tweaks of the policy into consideration when more details are announced.

A change.org petition to stop the state pension being taxed has now reached over 200,000 signatures.

Liberal Democrat Treasury spokeswoman Daisy Cooper said: “Buried in the small print of today’s Spring Statement is a shock stealth grab hitting another one million pensioners.

“For poorer pensioners, every penny counts and these unfair tax hikes could be the final straw.

“Rachel Reeves must urgently explain how she will protect older poorer pensioners from this stealth tax squeeze.

“Pensioners have worked hard all their lives, paid into the system and played by the rules. Poorer pensioners should not be made to pay the price for this Labour government’s economic failure.”

Ms Reeves’ update laying out the economic forecasts for the coming years painted a gloomy picture.

The UK faces weaker economic growth and higher unemployment than previously expected and sluggish growth.

Unemployment is forecast to hit 5.3% this year, up from the 4.9% that the OBR previously expected.

The watchdog said entrants into the labour force were “struggling to find work amid subdued hiring demand”.

Slower wage growth is expected to contribute to lower inflation, with the consumer prices index forecast to fall from 3.4% in 2025 to 2.3% this year and hitting the Bank of England’s 2% target from 2027.

Borrowing is to reduce by “nearly £18 billion compared to the autumn”, and public sector net borrowing is expected to fall from 4.3% this year to 3.6% next year.

Ms Reeves insisted she had the right plan and it was “more necessary than ever before in a world of uncertainty”.

In a highly political spring statement where she took aim at Reform UK and the Green Party, both of which stopped Labour winning in last week’s Gorton and Denton by-election, Ms Reeves cautioned against any “change of course”.

But growth will be slower than expected this year, with gross domestic product at 1.1%, down from the 1.4% that was forecast for 2026 in November.

The watchdog upgraded its forecasts for 2027 and 2028 from 1.5% to 1.6%.

Ms Reeves told the Commons: “This Government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain.”

She added: “The new forecasts from the Office for Budget Responsibility confirm that our plan is the right one – inflation is down, borrowing is down, living standards are up and the economy is growing.”

“But I am not yet satisfied with these forecasts,” she said, acknowledging “the economy is not yet working for everyone”.

She said she has “confidence” the Government can outperform the economic forecasts.

Taking aim at her opponents, Ms Reeves said: “In the year ahead, more of the choices that we have already made will come into effect – discounts on business energy costs, trade deals with India, the US and the EU, reforms to back our entrepreneurs, investments in our infrastructure, skills funding for further education and more planning reforms.

“Progress – opposed by the Conservatives, opposed by Reform, opposed by the Liberal Democrats, and opposed by the Green Party too – because it is Labour, and only Labour, that has the right plan for our country.”

In the wake of Labour’s by-election humiliation Sir Keir Starmer and Ms Reeves have faced pressure to shift to the left.

But Ms Reeves insisted “we must reject the temptation of easy answers and reckless borrowing”.

“My plan is the right one. I am in no doubt about how great the rewards can be if we stay the course.”