Contribution
It is a pleasure to serve under your chairship, Dr Huq. The Liberal Democrats have said clearly that we think it is both wrong and unfair that the Government have implemented a stealth tax grab that will hit some of the lowest-paid and most vulnerable the hardest, by maintaining a freeze on income tax thresholds that hits ordinary families, people on low incomes and the group we are discussing today: pensioners. An estimated 600,000 people were dragged into paying income tax for the first time this April, while a further 580,000 were pulled into the higher 40p rate.
Raising tax thresholds is the best and fairest way to cut taxes. Liberal Democrats would advocate that as a way to reduce income tax for everyone at every stage of life, taking the lowest-paid, including state pensioners, out of income tax altogether when public finances allow. When we were in government, we raised the personal allowance, taking millions of people out of income tax, putting money back into people’s pockets and helping ensure that work and hard-earned state pensions would pay.
By contrast, the Conservatives and Labour have frozen it again and again. That has left us in a position in which the state pension is nearly equal to the threshold. The full rate of the new state pension for 2026-27 is £240.30 a week, or £12,547.60 a year, while the standard personal allowance is £12,570 a year. It is an absolutely tiny gap.
The Chancellor has said that state pensioners will be exempt from paying income tax. We support that exemption, which is all well and good, but we need the Government to publish more information on how they are going to guarantee it if they continue their policy of freezing the tax threshold. With less than a year to go, people will understandably be worried. They urgently need clarity about which specific process they will have to follow and a cast-iron reassurance that they will not fall through the cracks.
Ultimately, stealth tax rises are not only dishonest with voters, but a completely inadequate and ineffective way for the Government to paper over the cracks in their economic plan. There is no better way to get the economy growing than to make everybody feel better off; the best way to balance the books is to grow our economy, and the quickest way to do that is to repair the damage of the terrible Brexit deal by negotiating a new UK-EU customs deal. A better trade deal would be a huge boost to our public finances, and the best and fairest way to end the crisis in the NHS, boost our defence capabilities and look to reduce the unfair tax burden that people have shouldered for the last few years.
The Liberal Democrats are clear that everyone deserves a chance to enjoy a decent retirement where they can live comfortably, whether in my Witney constituency or anywhere else in the country. We strongly opposed the Government’s decision to remove the winter fuel payments. We welcomed the Chancellor’s U-turn in that case, restoring payments to pensioners with incomes of £35,000 or less, but we continue to call on the Government to backdate payments to those who lost out and to confirm that the £35,000 threshold will be uprated with inflation each year.
We were proud when in government to introduce the triple lock. It was desperately needed after years of the real value of the state pension falling, as was set out very well by the right hon. Member for South Holland and The Deepings (Sir John Hayes). We will always fight to guarantee that pensions keep pace with the cost of living. We want to develop measures to end the gender pension gap in private pensions and ensure that working-age carers can save properly for retirement. We would also like to see improvement to the state pension system by investing in helplines to ensure quicker resolution of underpayments, and an end to the scandal of lost top-up payments through an overhaul of the processing system and provision of proper receipts.
In summary, I urge the Government once again to reconsider the freeze on tax thresholds, which has dragged millions of people into paying more tax at a time when cost of living pressures are hitting people at all stages of life really hard. Raising the thresholds would ensure that pensioners, as well as working-age households, got a fairer deal. The Government should stop using stealth tax grabs to paper over the bigger issues in the economy and boost trade to get the economy moving, making everyone feel better off. Finally, I ask the Minister to spell out how he will ensure that people on the state pension are not dragged into paying income tax on it, so that we can give peace of mind to older people on low incomes.