One Million More State Pensioners Face Tax Bills After Rachel Reeves’ Threshold Freeze

A growing number of retirees are expected to pay income tax on their Department for Work and Pensions (DWP) state pension, following Labour Party Chancellor Rachel Reeves’ decision to freeze the income tax threshold. The Office for Budget Responsibility (OBR) has revealed that 600,000 more pensioners than previously estimated will be liable for income tax in the upcoming tax year, bringing the total to one million. This figure is forecasted to rise further to one million by the 2030-31 tax year.

Currently, pensioners who rely solely on the state pension avoid paying income tax because their annual income typically falls below the personal allowance of £12,570. The state pension provides around £12,014 per year, under this threshold. However, retirees with additional taxable income—such as private pensions or earnings—often exceed the limit, resulting in tax liability.

The OBR released these projections as part of Reeves' Spring Statement, the annual Government update on the state of the economy. Dan Coatsworth, head of markets at AJ Bell, described the UK economy as “stuck in the mud.” Although there are optimistic growth forecasts for 2027 and 2028, he noted that businesses and consumers may see little immediate relief.

Coatsworth also highlighted ongoing geopolitical and trade uncertainties, including conflict in the Middle East, stating that these pose significant risks to the UK’s economic outlook—and remain unaddressed challenges for Reeves’ administration.