Reeves vows state pensioners won’t have to pay tax despite alarm over Budget changes

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The chancellor said the Treasury would not go after ‘tiny amounts of money’ from state pensioners, pledging that they would not pay any tax in this parliament

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Rachel Reeves has insisted that people receiving only the state pension will not have to pay tax, despite fears that the decision to freeze tax thresholds at the Budget could leave pensioners liable to pay income tax.

The chancellor said the Treasury would not go after “tiny amounts of money” from state pensioners, pledging that they would not pay any tax during this parliament.

Generally, pensioners whose only income is the state pension have not had to pay any income tax because the full state pension – currently £230.25 a week – falls below the personal tax allowance of £12,570 a year.

But for the first time since its introduction, the new state pension is set to exceed the personal allowance in the 2027/28 tax year under the triple-lock policy, which guarantees that it increases by whichever is higher of the rate of inflation, average earnings growth, or 2.5 per cent.

It comes after the Treasury announced plans to freeze income tax thresholds until the 2030-2031 tax year, a move which is set to raise £7.6bn in revenue by 2030 and drag millions more people into paying higher income tax.

This means that people, including pensioners, will be pulled into higher tax bands as their income increases in line with inflation.

But asked in an interview with money expert Martin Lewis whether pensioners would have to fill out a tax return, the chancellor said: “If you just have a state pension, you don't have any other pension, we are not going to make you fill in a tax return.

“I make that commitment for this parliament.”

She added: “You're right, 2027 looks like the time that it will cross over. We are working on a solution as we speak, to ensure that we're not going after tiny amounts of money.”

Pressed on whether state pensioners won’t have to pay any tax, Ms Reeves said: “In this parliament, they won’t have to pay the tax, further out I’m not going to be able to make any commitments on that, but we’re looking at a simple workaround at the moment.”

This week, the chancellor bet her political future on a £26bn tax raid on the middle classes in her make-or-break second Budget, after weaker economic forecasts left holes in her previous spending plans.

The tax hikes are also needed to pay for increased welfare spending, with Ms Reeves announcing the abolition of the two-child benefit cap, which is expected to lift 450,000 children out of poverty.

Having abandoned plans for a manifesto-busting income tax rise, the chancellor opted for a range of smaller tax increases to pay for government spending and build a larger buffer against her borrowing rules.

These include a new pay-per-mile tax for electric vehicles, increased taxes on online betting and a so-called “mansion tax” on homes worth more than £2m.

But leading economic think tank, the Resolution Foundation, warned that the decision to extend the freeze on tax thresholds will hit lower earners.

Their analysis of Wednesday’s Budget says that by 2030-31 people earning less than £35,000 a year will pay more than if the chancellor had raised the basic rate by 1p.

The chancellor also continued to face accusations of breaching Labour’s election promise not to raise taxes on working people after deciding to keep tax thresholds frozen and levying national insurance on some pension contributions.

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