OPINION
Keir Starmer and Rachel Reeves face a major financial dilemma (Image: Getty)
needs to find a spare £10billion . The freeze in the point at which people have to start paying income tax means more lower-income workers and retirees now have to hand over cash to the Treasury.
There is already alarm that 10 million pensioners are on course to pay income tax by 2032. And the Chancellor can expect fury if she extends the freeze in the personal allowance because of the dire state of the economy and the fragile condition of the national finances.
The Institute for Fiscal Studies says that if she keeps the freeze in place for an extra two years this could boost Treasury coffers by £10billion in 2029-30.
It admits this would be a “stealthy and arbitrary means of raising revenue” but it may prove politically preferable to announcing brand new taxes.
The suggestion comes right at the moment when Ms Reeves faces a series of gruelling choices. The worsening financial situation is understood to have wiped out her £10billion in “headroom”.
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Multi-billion pound cuts in welfare spending are expected and Labour will be braced for cries that this is the return of “Tory austerity”. Treasury mandarins may tell the Chancellor that people will scarcely notice if she keeps thresholds frozen.
If so, they are wrong. Pensioners will be incandescent if they end up being taxed on the .
The personal allowance is just £12,570 and Deutsche Bank recently forecast the could hit £12,631 next year.
Campaigners fought hard to win and then protect the – which ensures the pension keeps pace with wages, earnings and inflation. It is one of the strongest defences against pensioner poverty.
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Taxing the would be condemned as an unpicking of the by stealth, a betrayal of the elderly and an act of gross unfairness.
This would be the definition of giving with one hand and taking with the other.
At the last election the promised to increase the personal allowance for pensioners by at least 2.5% to prevent this farcical situation. And at the next election, all the potential parties of power will be in pitched battle for the support of this mighty slice of the electorate.
Ms Reeves risks their fury at her peril. Millions of pensioners have had to weather the winter stripped of their fuel payments, and they will not suffer a tax raid quietly.