Labour will hit elderly with ‘retirement tax’, claim Tories

Laura Trott said that, under a Labour government, people on the basic state pension would be taxed for the first time in history
Laura Trott said that, under a Labour government, people on the basic state pension would be taxed for the first time in history - Geoff Pugh for The Telegraph

Labour would hit the elderly with a “retirement tax”, the Tories have claimed, after Rachel Reeves refused to match their plan to keep the state pension tax-free.

Laura Trott, the Chief Secretary to the Treasury, said Labour’s stance would mean thousands of retirees being dragged into paying income tax from 2027.

Her remarks came after Rachel Reeves, the shadow chancellor, attacked the Tory pension pledge as a “gimmick” and insisted she would not make unfunded spending commitments.

Rishi Sunak promised to raise the income tax threshold for pensioners every year so it was always higher than the annual value of the state pension, saying it would mean retirees had “peace of mind” that they would never end up being dragged into paying tax on it.

Ms Trott said Labour’s refusal to match the pledge meant that the elderly would be hit with new taxes midway through the next Parliament.

“Labour have decided not to match our commitment to increasing personal tax thresholds for pensioners, dragging thousands of pensioners into a new retirement tax,” she said. “This means that under a Labour government, people on the basic state pension will be taxed for the first time in history. The choice is clear.”

Under the Tory proposals, the income tax threshold for retirees would be linked to the triple lock, meaning it would go up by the same amount as the state pension every year.

The result would be that the current buffer of £1,000 between the annual state pension, which is £11,500 and the tax threshold, which is £12,570, would be permanently baked in.

Following a speech to business leaders at the Rolls-Royce factory in Derby, Ms Reeves was asked whether she would match the pledge in government.

She said that Labour was “absolutely committed” to the triple lock, under which the state pension rises by whichever is highest of inflation, average earnings or 2.5pc, but attacked the Tory plan for a “triple lock plus” as “another desperate gimmick” from Mr Sunak.

“Even before today they had racked up £64 billion of unfunded tax cuts,” she said, referring to the long-term Tory aspiration to abolish National Insurance.

“The only reason that pensioners are looking for the first time at paying income tax on their basic state pension is because the Conservatives lost control of the economy.

“I’ve been very clear – I want taxes to be lower. But I’m not going to make any commitments where I can’t say where the money is going to come from. Unlike the Conservatives, I will never play fast and loose with the public finances.”

Jonathan Ashworth, the shadow paymaster general, had earlier also attacked the pledge, warning that it was unfunded and that voters would “pay the price in the end”.

Speaking at the launch of Labour’s election battle bus, he said: “Day after day the Tories are making billions of pounds worth of commitments out of desperation. They are splurging out desperate commitments with no explanation of where the money is coming from.”

The policy would cost about £2.5 billion a year, with the Tories saying the proceeds would come from £6 billion they would raise by cracking down on tax avoidance.