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Daily Record
a day ago
- Business
- Daily Record
State Pension boost of £478 for payments next year for some
The Bank of England has predicted inflation will hit 4% in September, meaning the State Pension could rise by up to £478 from next April People over the State Pension age could witness their payments rise by up to £478 next year. This follows the Bank of England's forecast of inflation reaching 4% in September. Owing to a standing commitment to the triple lock, this could result in a corresponding increase in the State Pension. The triple lock guarantees that each April, State Pension payments are raised by either average wage growth, inflation from the most recent September, or 2.5% - whichever is the highest. This implies that those receiving the State Pension could see an uplift of £500 to their payments, effectively raising weekly payments from £230.25 per week to £239.46 per week (or £12,451 annually). However, The Times has reported that Chancellor Rachel Reeves could face a surge in government costs of £2.1 billion from upholding the triple lock alone for the 4.5 million individuals who receive payments from the new State Pension. Inflation concerns linked to the cost of living It's key to highlight that the Bank of England's inflation prediction significantly exceeds the target rate of 2%. The National Institute of Economic and Social Research has cautioned that taxes may need to be hiked in the Autumn Budget to help plug a £51 billion gap in public finances. The Office for Budget Responsibility has projected that government pension spending could soar to £182 billion by the 2029/2030 financial year, up from £142 billion. Former pensions minister, Sir Steve Webb, highlighted the strain on the Chancellor due to the triple lock. He remarked: "This commitment was not only in the Labour manifesto but has also been used repeatedly to defend the changes to winter fuel payments, so seems unlikely to be broken. The challenge for all parties is how to move from the current process to something less generous, not least at a time when the state pension is still not especially generous by international standards." Despite worries that increased taxes might impact the cost of living for those who don't receive the State Pension, Dennis Reed, director of Silver Voices, commented: "A rise of 4% is barely keeping up with the cost of living. They [older people] are getting by on a subsistence income and 4% of very little is still very little." Meanwhile, the Bank of England has announced a cut in interest rates to 4%, the lowest in over two years, this week, while also drawing attention to rising energy and food prices for consumers. It observed that food inflation had climbed to 4.5% in June from the previous year and could reach as high as 5.5% by December. Whilst it anticipates inflation to reach a peak of 4% in September, it also offered a more long-term forecast of inflation averaging at 2.5% in 2026 and 2% in 2027.
Daily Mirror
a day ago
- Business
- Daily Mirror
State Pension payments could rise by £478 for some people
The Bank of England's inflation predictions have led to speculation that the State Pension could increase by 4% next year. This could see payments go up by as much as £500 Next year, some people over the State Pension age c ould see their payments rise by as much as £478. This follows the Bank of England's prediction that inflation will reach 4% in September. Due to a standing commitment to the triple lock, this could result in the State Pension increasing in line with inflation. The triple lock guarantees that each April, State Pension payments increase by either average wage growth, inflation from the most recent September, or 2.5% - whichever is the highest. This means those who receive the State Pension could see an increase of £500 to their payments, effectively raising weekly payments from £230.25 per week to £239.46 per week (or £12,451 a year). However, The Times reported that Chancellor Rachel Reeves could see government costs rise by £2.1 billion from maintaining the triple lock alone for the 4.5 million people who receive payments from the new State Pension. Inflation worries are tied to the cost of living. It's crucial to remember that the Bank of England's inflation forecast is significantly above the target rate of 2%. The National Institute of Economic and Social Research warned that taxes may need to be raised in the Autumn Budget to help plug a £51 billion gap in public finances. Furthermore, the Office for Budget Responsibility highlighted that government expenditure on pensions could surge to £182 billion by the 2029/2030 financial year - a substantial jump from £142 billion. Former pensions minister Sir Steve Webb also observed that the triple lock was mounting pressure on the Chancellor. He said: "This commitment was not only in the Labour manifesto but has also been used repeatedly to defend the changes to winter fuel payments, so seems unlikely to be broken. The challenge for all parties is how to move from the current process to something less generous, not least at a time when the state pension is still not especially generous by international standards." Despite worries that higher taxes could impact the cost of living for those who don't receive the State Pension, Dennis Reed, director of Silver Voices, said: "A rise of 4% is barely keeping up with the cost of living. They [older people] are getting by on a subsistence income and 4% of very little is still very little." Whilst the Bank of England revealed this week that it would slash interest rates to 4%, the lowest level for more than two years, it emphasised rising energy and food costs for consumers. It observed that food inflation climbed to 4.5% in June compared to the same period last year and could rise to up to 5.5% by December. While a peak of 4% inflation is expected in September, longer-term forecasts suggest an average inflation rate of 2.5% in 2026 and 2% in 2027.
CNBC
4 days ago
- Business
- CNBC
The UK government won't admit it, but tax rises are coming — and there are no good options
The U.K. government is loathe to admit it, but economists say it's highly likely that the Treasury will have to hike taxes in the fall if it is to bung a black hole in the public finances that it has effectively created for itself. The National Institute of Economic and Social Research (NIESR) is the latest economic think tank to warn that taxes would have to rise later this year if British Chancellor Rachel Reeves is to meet her self-imposed "fiscal rules." These rules target both a balanced or budget surplus by the end of the decade — with the so-called "stability rule" requiring that day-to-day spending is funded by tax revenues rather than borrowing — and that debt, as a proportion of GDP, should be falling by the end of this parliament (in 2029-30), aka the "investment rule." "The Government is not on track to meet its 'stability rule', with our forecast suggesting a current deficit of £41.2 billion in the fiscal year 2029-30," NIESR said in an economic outlook released Wednesday. "Substantial adjustments in the Autumn Budget will be needed if the Chancellor is to remain compliant with her fiscal rules," it added in the report. With the government having fixed its spending plans for the next couple of years in its recent Spending Review, "the only lever available is to raise taxation in a moderate but sustained way," the think tank said in the report titled "the Chancellor's Trilemma." The 'trilemma' refers to the bind Reeves finds herself in thanks to her own fiscal rules, tax and spending commitments made over the last year and the Labour Party's manifesto promise to not raise taxes on "working people." "Simply put, the Chancellor cannot simultaneously meet her fiscal rules, fulfil spending commitments, and uphold manifesto promises to avoid tax rises for working people. At least one of these will need to be dropped – she faces an impossible trilemma," NIESR said. It's worth noting that NIESR's forecast for the budget deficit could be even higher, at around £51.1 billion, if Reeves wants to keep around £9.9 billion's worth of fiscal "headroom" that the Treasury had planned for, but which has been slowly eroded after U-turns on welfare reforms and winter fuel payment cuts for pensioners. "For the Chancellor to really shift the dial and build a reasonably sized buffer against her fiscal rules, she will have to look at either raising VAT or raising income taxes. VAT is the least distortionary tax but is also the most regressive. So, rises in income tax rates are likely to be the best answer, as we have previously argued," NIESR said, but added that there were few palatable options for the chancellor. British Prime Minister Keir Starmer was asked about the NIESR report on Wednesday, and the suggestion that tax rises would be necessary, but said he did "not recognise" the figures. Nonetheless, he declined to rule out hiking VAT, income tax and corporation tax in the fall, Sky News reported. "Some of the figures that are being put out are not figures that I recognise, but the budget won't be until later in the year, and that's why we'll have the forecast then and we'll set out our plans," he said. NIESR said Chancellor Reeves faces "unenviable decisions" for the Autumn Budget, when she will unveil taxation and spending plans for the year ahead. "Unfortunately, the most politically acceptable choices for tax increases would either raise very little revenue or would have large distortionary effects, or both," the think tank said, suggesting some measures — such as extending income tax thresholds — would "particularly affect poorer households." Other measures, such as cutting the current £20,000 tax-free cash ISA allowance, or increasing the rate of capital gains tax, could disincentivize saving, the think tank warned. The government could also reverse cuts to employees' national insurance contributions (NICs) but "while this would generate significant revenue over the parliamentary term," it would again breach the manifesto pledge not to raise taxes on working people, and could have strong "distortionary effects via discouraging job creation and so would likely increase unemployment." When Reeves announced her government budget last fall, she unveiled a £70 billion boost to public spending to be funded by higher borrowing and £40 billion in tax rises, which mostly hit British businesses. At the time, she insisted it was a one-off move, telling lawmakers that "we're not going to be coming back with more tax increases, or indeed more borrowing." Reeves could potentially adjust corporation tax rates and allowances which could also raise significant tax revenues, but this would run contrary to her previous pledge to cap corporation tax at 25% for the lifetime of the parliament. It would also likely have a negative effect on business confidence, which has already taken a hit after a hike to employer NICs that took effect in April.
Times
4 days ago
- Business
- Times
Why Rachel Reeves's state pension headache is about to get worse
Pensioners could be in line for a £478 boost to the state pension next year as rising inflation puts pressure on the government's promise to maintain the triple lock for millions of households. The Bank of England has predicted inflation will reach 4 per cent in September, fuelled by the recent £25 billion increase to employers' national insurance contributions and a higher minimum wage. The triple lock guarantees that the state pension goes up in April each year by whichever is highest of wage growth, the inflation figure from the previous September or 2.5 per cent. A 4 per cent increase would raise the full new state pension from £230.25 a week to £239.46 next year, or up to £12,451 a year, although not everyone receives that amount. • Another interest rate cut but Bank warns of new UK inflation shock Such a rise would cost Rachel Reeves, the chancellor, £2.1 billion to maintain the triple lock for the 4.48 million people who claim the new state pension — which she and her party promised to keep at the past general election. This week the National Institute of Economic and Social Research told Reeves that she must raise taxes in the autumn budget to fill a £50 billion fiscal black hole. The Bank of England forecast that the consumer price index measure of inflation would peak at 4 per cent in September. This is double the Bank's target rate of 2 per cent and 0.3 percentage points higher than the forecast in May. The government spends about £142 billion a year on pensioners, which includes the state pension and other benefits. The Office for Budget Responsibility, the fiscal watchdog, expects this to rise to £182 billion by the end of the 2029–30 financial year. Laith Khalaf from the wealth manager AJ Bell said: 'No doubt this will once again raise questions about the fairness of the triple lock, especially against a fiscal backdrop which suggests the chancellor is going to have to stick a shovel into taxpayers' pockets again in the autumn budget.' • David Willetts: The triple lock has been far more damaging than I ever feared Sir Steve Webb, the former pensions minister who is now a partner at the consultancy Lane Clark and Peacock, said the commitment to the triple lock was a spending pressure that the chancellor could do without. He said: 'This commitment was not only in the Labour manifesto but has also been used repeatedly to defend the changes to winter fuel payments, so seems unlikely to be broken. The challenge for all parties is how to move from the current process to something less generous, not least at a time when the state pension is still not especially generous by international standards.' The Treasury could soon claw back some of the state pension in tax. The Bank expects the full new state pension to rise above the £12,570 personal allowance — the annual amount you can earn before you have to start paying tax — in less than two years' time. It forecast that the new state pension would rise to £12,788 a year by April 2027. A pensioner with no other income could be forced to pay back £43.60 in tax — at a marginal rate of 20 per cent — on that amount. Income tax thresholds have not changed since 2021, when they were frozen by the previous Conservative government until at least 2028. Although there is speculation that Reeves may be forced to extend the deep freeze on tax thresholds as a way to raise revenues in the budget. Tom McPhail, an independent pensions consultant, said: 'While the timing is inevitably slightly uncertain, the combination of frozen tax thresholds and rising inflation inevitably leads to the state pension becoming liable to income tax. 'It is ridiculous that the government has launched a pension commission to review our retirement prospects, yet before the commission even starts, they have put out of reach all the big policy levers which could actually make a difference, including reforming the triple lock.'
Powys County Times
4 days ago
- Business
- Powys County Times
Rachel Reeves should exempt defence pledge from budget rules, says Gordon Brown
Gordon Brown has said Chancellor Rachel Reeves should exempt the Government's defence spending pledge from her borrowing rules to help free up economic headroom. The former prime minister said the commitment to spend 5% of GDP on national security by 2035 should be dealt with jointly as a 'Nato initiative', with costs shared across Europe. Leading economists have warned the Chancellor will likely have to raise taxes in the autumn budget to plug a £51 billion black hole in the public finances. Ms Reeves is currently on track to miss one of her borrowing rules by £41.2 billion and needs to rebuild a fiscal buffer of nearly £10 billion that has been wiped out, the National Institute of Economic and Social Research (Niesr). Mr Brown, who served as chancellor for a decade in Sir Tony Blair's Labour administration, said on Thursday that the rise in defence spending should be treated as 'exceptional', as it has been in Germany. 'When you come to the fiscal position, look, there's one thing that's happened over the last few months that has been quite unprecedented – to spend 5% on defence expenditure as we want to spend by the 2030s,' he told BBC Radio 4's Today programme. 'But this is a Nato initiative, this is a European initiative. We should be doing this jointly. 'We should have either jointly issued bonds or a Nato defence fund, and we should be sharing the cost across the continent, and that should be regarded as something extraordinary and exceptional, outside the fiscal rules. 'That would create the kind of headroom that Rachel Reeves needs.' Germany has voted to exempt some defence spending from its self-imposed borrowing constraints as Nato allies seek to boost funding following pressure from US President Donald Trump for them to shoulder more of the burden of European defence. Mr Brown said: 'If you look around Europe at the moment, you see that the Germans are looking at what they can do outside the fiscal rules… the French are looking at ways of doing it, the Polish have already done that. 'What I'm actually asking for is a European-wide initiative. 'Let's do it jointly, either jointly issued bonds or individually issued bonds that are simultaneous and therefore seen by the markets as an extraordinary issue.' When she entered the Treasury, Ms Reeves set out two key fiscal rules: the first to ensure that day-to-day spending is matched by tax revenues, and the second to reduce net financial debt as a share of the economy. Ministers have already announced a cut to overseas aid to fund a boost in defence spending but economists have said the new Nato target of 5% by 2035 could increase expenditure by a further £38.6 billion.
