Yesterday’s Spring Statement announcement by Chancellor Rachel Reeves was centred around further cuts to disability benefits, late self-assessment fines and tax evasion.
But, as the forecast for growth by the Office for Budget Responsibility (OBR) was halved, the Institute for Fiscal Studies (IFS) has predicted future finances for the Treasury will come from pensioners.
Paul Johnson, director of the IFS, has predicted pensioners and the wealthy will pay more tax when the next fiscal announcement from the Chancellor arrives in the autumn.
Johnson said: “There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an Autumn Budget. If so, she will need to come back for more, which will likely mean raising taxes even further.
“That risks months of speculation over what those tax rises might be – a raid on pensions, a wealth tax on the richest, another hike to capital gains tax?”
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He added: “I mention those not to commend them, far from it, but to exemplify the kinds of taxes regarding which mere speculation about increases can cause economic harm. With no sense of a tax strategy, we have no idea which way the Chancellor might turn.”
Johnson believes the uncertainty around geopolitical events, including President Trump’s tariffs – which today (27 March) extended to a 25% cost on car imports to the US – means the Government’s budget could be thrown up in the air.
During an interview with the BBC on the day after the Spring Statement, the Labour Chancellor did not rule out potential tax hikes.
Rachel Vahey, head of public policy at AJ Bell, also shared concerns about the future of pensioners’ income and predicted that attention could turn to the rules of the state pension, despite Labour pledging to keep the triple lock in its manifesto.
‘Any changes to state pension will be hotly contested’
Vahey said: “With little to no wriggle room built into current plans, the Government may still be forced to look elsewhere for further savings. And one area that could come under scrutiny is the state pension.
“The biggest proportion of the welfare spending is on pensioners. This is set to rise by 20% to £182bn by 2029-30, mainly driven by an ageing population and the triple-lock guarantee. By the end of the decade, it’s estimated that pensioner spending will be almost 50% of the total welfare bill. If the Government is looking to cut costs, then pensioner spending could be something that moves into the Treasury’s crosshairs in the next few years.”
Vahey added: “Any changes to the state pension will be hotly contested. But the crunch time is fast approaching when the Government will finally be forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.”
Since 2010, the average earnings for pensioners have stagnated, according to the Department for Work and Pensions (DWP).
Some 15 years ago, pensioners’ income amounted to £392 per week, compared to £407 now – a rise of just £15.
Despite rumours the tax-free limit you can withdraw from your pension would be cut from £268,275 to £100,000 in last year’s Autumn Statement, the policy did not come to fruition.
Currently, savers over the age of 55 can withdraw 25% of their pension fund without paying tax, but Johnson believes this will likely change in the next major fiscal announcement.
