The welfare state has become absurdly dysfunctional
Britain's 12.9 million pensioners are better off financially than they have ever been, and certainly compared with the rest of the country. Their winter fuel allowance has been restored. The triple lock looks completely secure. And with the stock market close to record highs, any savings they have will be in a healthy state as well. There is just one snag. More of them are paying tax than ever before – and that is emblematic of a bloated welfare system that has become completely dysfunctional.
Another 420,000 people over the state pension age will have to pay some income tax in 2025-26, bringing the total to 8.7 million, according to the latest data from HMRC. It is not hard to work out why. The threshold for starting to pay income tax has been frozen at £12,570 since 2021, and with the public finances already out of control, it is not likely to be raised any time soon.
This is the result of a political class that always takes easy, short-term decisions
Meanwhile, the triple lock has meant that the basic state pension has risen from £9,332 to £11,973 over the same period. A pensioner needs hardly any additional income from savings or investments before they have to start paying tax. Indeed, by 2027, according to forecasts from the Office for Budget Responsibility, the state pension will be above the income tax threshold. Anyone receiving just the basic pension and nothing else will also have to pay some tax.
This is crazy. Sure, everyone agrees that well-off pensioners – and there are plenty of those – should pay tax on their income. But the government will very soon be in the absurd position of dishing out money to pensioners with one hand and then taking it back with another. The cash is just recycled, with lots of forms to be filled in and lots of potential for mistakes along the way.
The British welfare state is broken. Of course, it is the result of a political class that always takes easy, short-term decisions. It sounds better to protect the triple lock than to admit that pension spending is unaffordable. And it is less painful to freeze thresholds than to increase the basic rate of tax. The trouble is, it also creates a system that is more and more unworkable – and will ultimately collapse under its own absurdity.
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