Chancellor Rachel Reeves is being told to drag Britain’s retirees into the National Insurance (NI) net for the first time. This isn’t some fringe idea floated by some minor pressure group or tax campaigner.
It comes from Labour’s favourite think tank, the Resolution Foundation, which has a direct line to Downing Street. Reeves’s autumn Budget is actually being written by Torsten Bell, who ran the foundation for a decade before being parachuted into a safe Labour seat at the last election.
He’s now minister for pensions and “masterminding » the Budget. And this is the exactly the type of tax hike he’d love.
Bell isn’t the only former Resolution Foundation alumni flying high in the Labour hierarchy.
Dan Tomlinson, once an economist at the think tank, has just been appointed as Exchequer Secretary to the Treasury.
Another former member, Baroness Minouche Shafik, was brought in as Sir Keir Starmer’s chief economic adviser on September 1. She’s also worked closely with the Foundation.
When the Resolution Foundation speaks, Reeves listens. She has no choice actually. Everywhere she turns, one of them is sitting there. Grinning away, thinking about tax.
The Resolution Foundation’s latest tax ploy would haul 8.7million pensioners into paying NI for the first time. There are nearly 13 million pensioners in total, so that’s around two thirds of them.
It reckons this could raise £6billion a year. That’s a hugely tempting sum as Reeves desperately battles to balance the books.
In its election manifesto, Labour has promised not to hike income tax, NI or VAT. But the Resolution Foundation thinks it’s found a neat way round that pledge.
It suggests actually cutting the headline NI rate cut from 8% to 6%. It would then roll up the lower NI charge into income tax. Inevitably, there’s a catch.
This would mean that millions who don’t currently pay NI, primarily pensioners but also buy-to-let landlords and the self-employed, suddenly would. Except it wouldn’t be called NI anymore.
Any pensioners affected by the move would see their income tax bill by rise by a staggering 6p in the pound.
Millions of pensioners are already being dragged into higher income tax bands by the freeze on thresholds, which will run to at least 2028.
And from 2027, any retiree who gets the full new state pension will automatically pay 20% income tax on it, as it exceeds the £12,570 personal allowance. If this plan goes through, they could pay 26% tax.
Of course, nothing has been decided. The Budget isn’t until November 26. But Resolution Foundation ideas have a habit of making their way into Labour policy. Reeves pinched its proposals on inheritance tax and capital gains tax, in the last Budget.
Bell has a list of 20 tax increases he would just love to introduce. Presumably he’s now working through them, one by one. So this is no idle chatter.
Supporters say the move would only hit better-off retirees. The poorest wouldn’t pay because their income is too low.
Critics will see it as another raid on pensioners who spent decades paying in, only to be taxed again in old age.
It’s not even a new idea. This one has been kicking around the Treasury for years. Boris Johnson floated charging NI on pensioners back in 2021 to pay for social care, before dropping it. Now it’s back on the table.
If Reeves goes for it, millions of retirees face a brand new tax bill. And if she doesn’t, the Resolution Foundation will no doubt come up with other bright ideas to clobber pensioners.
