New State Pension Tax Shock: Rachel Reeves Targets Retirees with Income Raid This March

Chancellor Rachel Reeves is under mounting pressure as she prepares for her Spring Statement on March 26, with taxpayers—particularly pensioners—set to bear the brunt of her fiscal decisions. Reeves is grappling with a £70 billion shortfall after her autumn Budget failed to deliver the expected economic boost, leaving her with limited options: hike taxes, cut spending, or both.

One of the most controversial measures under consideration is extending the freeze on income tax thresholds, a policy initially introduced by the Conservatives in 2021. The personal allowance, currently frozen at £12,570, was set to remain unchanged until 2028. However, Reeves may now extend this freeze to 2030 to address the fiscal gap.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), has warned that extending the freeze is “right at the top of the policy options being considered.” This move would push an additional 7.7 million people into higher tax brackets, costing them £45 billion in total. For workers, this could mean an extra £4,000 in tax bills over the next few years.


The freeze is particularly devastating for pensioners, as millions could soon face income tax on their state pensions. From April, the new state pension will rise to a maximum of £11,973 per year, just £597 below the personal allowance. Even modest additional income from savings or private pensions could push pensioners into taxable territory.

If the state pension increases by just 5%, which could happen as early as 2026, anyone receiving the full amount will start paying income tax on it. By 2030, an estimated 3.6 million pensioners—roughly two in five—could be taxed on their state pensions. This marks a dramatic shift from four years ago, when only 500,000 pensioners paid income tax on their state pensions.


The tax freeze has already had a significant impact. Last year, 1.2 million pensioners paid income tax on their state pensions, up from 500,000 in 2021. If the freeze is extended, this number could triple, with many older and vulnerable pensioners facing unexpected tax bills. Some may even need to submit self-assessment tax returns for the first time, adding to their financial and administrative burdens.

Reeves is caught between a rock and a hard place. Extending the tax freeze would help plug the fiscal gap but risk alienating millions of voters, particularly pensioners and low-income workers. Alternatively, cutting spending could undermine public services and further strain an already fragile economy.

The Chancellor’s Spring Statement will be a critical moment for her leadership and the Labour government. With the tax freeze already causing widespread discontent, any further austerity measures could spark a backlash from both the public and within her own party. As the fiscal noose tightens, Reeves must navigate these challenges carefully to avoid a full-blown political crisis.