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Daily Mirror
18 hours ago
- Business
- Daily Mirror
Hundreds of thousands of pensioners face 'new' tax this year
The Chancellor is under fire as hundreds of thousands more pensioners are dragged into the income tax net, thanks to the triple lock and the personal allowance freeze Soaring numbers of pensioners are set to get caught in the income tax net this year – without feeling any richer – as HMRC stats indicate 420,000 more pensioners will pay the tax in 2025-26. Nearly 8.7 million over-65s will be paying income tax, marking a 5% hike from the previous year. The issue stems from the ex-Tory government's move to anchor personal tax allowances at £12,570 from 2021 all the way through to possibly 2028 – a decision that Chancellor Rachel Reeves upheld in her inaugural Budget. This worrying threshold freeze pairs with state pension values climbing almost 30% thanks to the 'triple lock', and that means a substantial number of retirees will now hand over basic-rate tax cash at 20%, despite relying solely on state support. Policy expert David Brooks from Broadstone cautioned in The Times: "While the country's demographic shift naturally increases the number of pensioners liable for income tax, fiscal drag is unequivocally pulling hundreds of thousands more into the income tax bracket each year." In 2021, the full new state pension was at £9,332.20. By April, it had increased to £11,973 - just £597 short of the frozen personal allowance. The Office for Budget Responsibility forecasts that within two years, it will rise again to £12,885.50, surpassing the tax-free threshold by £315.50. Wealth manager Quilter has warned that pensioners receiving the full entitlement - after 35 years of National Insurance contributions - would be taxed £63 a year on their pension alone, without considering any other income such as savings, dividends or rental returns. Critics have long contended that this so-called 'fiscal drag' is a method for the Treasury to gather billions, without outright raising tax rates. Meanwhile, millions of workers are also being pulled into higher tax brackets. The number of Brits paying 40% higher-rate tax is predicted to reach 7.1 million this year, up from 5.1 million in 2022-23 - a 39% increase. Even more remarkable perhaps is the surge in those paying the 45% top rate: 1.23 million people will surrender nearly half their earnings above £125,140 this year, more than double the 570,000 from just three years ago. The number of basic-rate taxpayers has also risen - from 28.8 million in 2022 to 30.8 million today. Neela Chauhan, partner at accountancy firm UHY Hacker Young, said: 'Though it might seem equitable for higher earners to be paying more tax, there are real concerns over the impacts of placing an ever higher tax burden on high earners. 'Increasing the tax burden too high could push these people to leave the country or deter talented people from moving to this country. There are already concerns of a 'brain drain' in the UK.' Rachel Reeves has said the freeze on tax thresholds will end in 2028, however she is now under pressure to continue it through to 2030 in order to head off a black hole in government finances and stick to her fiscal rules.
Spectator
a day ago
- Business
- Spectator
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.
The National
3 days ago
- Business
- The National
SNP Government 'to cut spending by £2.6 billion per year by 2030'
Speaking in Holyrood, Shona Robison said that the Scottish Government's plans would save the equivalent of '4.4% of the forecast resource budget' by 2029/30. Her speech came as the Scottish Government published both its Medium-Term Financial Strategy and its first Fiscal Sustainability Delivery Plan. Opening, Robison said that the Scottish Government had been left facing a '£400 million shortfall' after Chancellor Rachel Reeves declined to provide full funding for the additional costs of Labour's increases to employers' National Insurance contributions. She went on: 'Further, in the UK Spending Review, had the resource funding being provided to the Scottish Government for day to day priorities matched the average increase for UK departments, we would have £1.1 billion more to spend over the next three years. 'And, last week, they set out proposals that will deliver deep cuts to disabled people's support – pushing more people into poverty. With a real life negative funding impact in Scotland of £440m by 2029-30, based on the Office for Budget Responsibility's estimates.' Robison said that the allocations "simply do not reflect the unavoidable realities of the demands that will be placed on public services by the demographic changes we face – not least through an ageing population". More to follow …
Zawya
5 days ago
- Business
- Zawya
UK growth drive could require reshaping the Treasury: Peacock
(The views expressed here are those of the author, the former head of communications at the Bank of England and a former senior editor at Reuters) LONDON - UK finance minister Rachel Reeves insists higher economic growth is her top priority, but the government's current plan to address the country's chronically low investment is unlikely to be ambitious enough. What may be needed is a structural rethink of the finance ministry itself. Reeves has adjusted her fiscal rules to allow for an extra 113 billion pounds of investment over five years, while remaining committed to ensuring debt falls as a proportion of national income within five years. In the UK government's latest spending plan unveiled last week, she started to allocate the extra capital to areas including defence, housing, transport infrastructure and a new nuclear power plant. Even so, according to the Office for Budget Responsibility, an independent fiscal watchdog, UK capital spending will climb to a peak of 3.9% of GDP in 2027/2028 but then fall back in the following two years, continuing a limp public investment record stretching back to the global financial crisis. Reeves is searching for other growth levers, including deregulation and increased UK investment by British pension funds. Additionally, the government is seeking to streamline planning laws and taking steps – albeit small ones – to rebuild trade relations with the European Union. But the government is fundamentally hamstrung by its fiscal rules. Departments are currently required to go cap in hand to the finance ministry to learn what they can spend and then undergo frequent check-ins to see if the fiscal position has deteriorated, which could lead to spending cuts or tax rises. This is not a system that will produce a viable long-term growth strategy. The International Monetary Fund – not known for being a fan of unfettered state spending – said last month that the UK should consider taking a more pragmatic approach to avoid having to change policy too often. The IMF suggested minor breaches should not require instant corrective action and that assessment of the rules should be done no more than once a year. But something more radical is likely required for Britain to break out of the low growth, low productivity loop it has been trapped in for almost two decades. Over this period, debt as a proportion of GDP has almost tripled while the national tax take has held steady, suggesting that part of the problem might be with the way the finance ministry operates. RESET REQUIRED The machinery of government needs recalibration to focus more systematically on productive investment that can ultimately help to drive debt down over time. Reeves is trying on this score. She has asked the OBR to assess the long-term impact of capital spending decisions to determine whether they could improve public finances. She is also changing the Treasury's "Green Book" rules that dictate approval of capital projects, shifting from a narrow cost-benefit analysis to an assessment of the impact on broader strategic goals such as lifting poorer regions of the UK. However, a fundamental issue remains. The Treasury still wields huge influence within the UK government, and when growth falls short, the impulse is typically to tighten the fiscal screws, thereby worsening growth prospects. The Institute for Government, a UK-based think tank, has argued that the economic heft of the prime minister's team needs strengthening as a counterbalance. EU nations – Germany, Spain and the Netherlands among others – have both a finance ministry and a separate, growth-focused economy ministry at the heart of government. Calls for a dramatic change in the Finance Ministry are growing. Maurice Glasman, who heads "Blue Labour", a campaign to reverse what it says is the Labour Party's abandonment of working-class communities, advocates abolishing the Treasury, scrapping fiscal rules and pursuing heavy infrastructure investment. While Glasman's prescription has little chance of being implemented in full, his ideas could gain influence within a government threatened by the rise of Nigel Farage's populist Reform UK party, which is targeting traditional Labour voters. Recent opinion polls have given Reform UK 27%-32% public support compared with 22%-24% for Labour. Ensuring public finances do not spiral out of control is, of course, critical for any government. And less oversight by the Treasury could result in wasted taxpayer money spent on unproductive investments that appeal to the political base. Moreover, the bond market has not reacted well to perceived UK fiscal imprudence in recent years, as demonstrated by the rapid demise of Liz Truss's premiership of 2022. But bond investors are apt to respond more positively to a long-term, investment-led approach to reducing public borrowing, even if it involves some upfront spending. It helps that the UK currently faces less political uncertainty than some of its peers and is in the middle of the pack in terms of developed market debt burdens. Reeves appears to understand that an investment-led structural reset is required to jump-start the UK growth engine. But to make that a reality, the first change may need to be rethinking the relationship between the Treasury and the prime minister's office. Enjoying this column? Check out Reuters Open Interest (ROI), opens new tab, your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI, opens new tab can help you keep up. Follow ROI on LinkedIn, opens new tab and X. (Writing by Mike Peacock; Editing by Anna Szymanski and Paul Simao)
The Sun
20-06-2025
- Business
- The Sun
Tax hikes put UK budget deficit on track against official forecasts
LONDON: An influx of taxes paid by businesses put Britain's budget deficit on track to meet official forecasts at the start of the 2025/26 financial year, welcome news for finance minister Rachel Reeves as she seeks to repair the public finances. Official data on Friday showed public sector borrowing for May was 17.686 billion pounds ($24 billion). While a Reuters poll of economists showed a median forecast of 17.1 billion pounds, the government has borrowed 37.7 billion pounds over the first two months of 2025/26 - less than the 40.7 billion pounds the Office for Budget Responsibility had predicted. Reeves' budget plans hinge on a tiny buffer against the government's self-imposed fiscal rules - equivalent to less than 1% of annual spending - meaning they are vulnerable to even small shifts in the economic outlook. While she is likely to take heart from Friday's data, Reeves' budget plans could yet be knocked off course by conflict in the Middle East and surging oil prices, weak business confidence in the wake of tax hikes, and global trade wars. The Bank of England said on Thursday the underlying pace of economic growth was weak. Separate data from the Office for National Statistics showed British retail sales volumes recorded their sharpest drop since December 2023 last month. 'Borrowing was slightly better than expected in the first two months of the financial year, making the indicator a lonely amber light among the many red lights that are flashing with increasing rapidity on the government's economic and fiscal dashboard,' said Alison Ring, director of public sector and taxation at accountancy body ICAEW. EARLY INDICATIONS Friday's figures from the ONS provided an early indication of the impact of a significant increase in employer social security payments - known in Britain as National Insurance Contributions - which took effect in April and are paid a month in arrears. A major source of funding for the Labour government's spending plans, the ONS said compulsory social security contributions in April and May combined were 30.2 billion pounds - a little less than the Office for Budget Responsibility predicted but still a record in cash terms. Compared with the same period in 2024, social security contributions were up 17.5% - the biggest such rise in three years. An ONS statistician warned that next month's data was likely to show a 'very high' debt interest payment, reflecting an increase in the gauge of inflation that underpins the compensation paid on index-linked government bonds. The British government bond market has become increasingly volatile in recent years, reflecting unease among investors over Britain's mix of slow economic growth, high debt interest costs and persistent inflation. Last week Reeves set out a multi-year spending review which divided up more than 2 trillion pounds of public spending between government departments. ($1 = 0.7447 pounds)
