No one will pay tax on the state pension under the Tories, Rishi Sunak has pledged as he made his party’s election pitch to the grey vote.
And too right. But it shouldn’t really be profound to propose that income tax is not charged on a benefit paid by the state.
Yet this is the situation we find ourselves close to today after the Tories imposed their deep freeze on tax thresholds and, at the same time, continued with unfettered spending on the state pension.
The “triple lock plus” – or “quadruple lock” – means that the tax-free personal allowance will always exceed the value of the state pension to avoid the benefit being taxed.
The Telegraph has been warning for years that – thanks to Tory threshold freezes – tax will soon be due on the state pension.
You have to admire the gall of the Conservatives who, when announcing the policy, stated that: “Alternatively, Labour would drag everyone in receipt of the full state pension into income tax for the first time.”
This is a problem entirely of their own making. As chancellor, Sunak froze the personal allowance, and a host of other tax thresholds, for five years. Jeremy Hunt then added another two years to extend the freeze until 2028.
It was dubbed the biggest tax raid in modern history by the Institute for Fiscal Studies.
However, the “triple lock plus” will do little to help those pensioners with moderate savings of their own, who are now paying more and more tax at a higher rate.
You are only taxed at 20pc if you breach the personal allowance, but if you breach the higher rate threshold you’ll be taxed at 40pc.
So every “triple lock plus” boost might mean you don’t pay 20pc tax on your state pension, but you’ll still pay more on your private pension income.
We revealed earlier this year that pensioners are £400 worse off already thanks to Tories. Since they came to power, a pensioner with a private retirement income equal to the state pension has seen their average tax rate more than doubled from 3pc to 8pc. It means the current cohort of pensioners are the most taxed in history.
The inescapable truth is that the Conservative Party has been responsible for a colossal tax raid on the over 65s, and the “triple lock plus” will do little to change that.
It’s also a confusing policy that raises too many questions about how it could possibly be administered. What happens to those pensioners who have an additional state pension that means it is worth more than the basic rate? What happens to those with pension income so large that they lose their entitlement to the personal allowance?
Presumably, pensioner couples will still lose the marriage allowance worth around £250 a year if one of them has an income over £50,270 and the other earns less than the personal allowance?
This mess sums up neatly just how damaging the deep freeze on tax thresholds has been. The rate of tax we pay has been distorted, complicated and confused.
And it’s a policy that has now tied the party up in knots. A far better election pledge would have been to promise to instate a range of fair and simple tax bands for all.
A £15,000 personal allowance for all and increases to the higher and additional thresholds would have been good places to start.
This eleventh-hour idea from the Tories is a “too little, too late” policy that is fit only for shallow electioneering.
ben.wilkinson@telegraph.co.uk
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