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A This Is Money column by Jeff Prestridge warns that a think-tank proposal to raise income tax by 2p while cutting employee National Insurance by the same amount could increase tax bills for pensioners, who do not pay NI. The proposal is not confirmed government policy, and the Chancellor’s Budget plans remain unclear.
Jeff Prestridge has warned that a proposed 2p rise in income tax could leave some pensioners paying more, while workers’ National Insurance bills fall by an equivalent amount. The proposal, discussed by the Resolution Foundation ahead of the Budget, is not confirmed government policy; Prestridge’s column urges Chancellor John Healey to reject it.
The Resolution Foundation says the tax change could help fund measures for families facing cost-of-living pressures and support the public finances. Under its suggested “two up, two down” approach, income tax would rise by 2p in the pound, alongside a matching reduction in employee National Insurance contributions. Since pensioners do not pay employee NI, including when working beyond state pension age, they would not receive the offsetting reduction.
Prestridge cites an estimate from investment platform AJ Bell that a pensioner with annual retirement income of £35,000 could pay just under £450 more in tax under the proposal. By contrast, a worker earning £35,000 would see their take-home pay remain unchanged, according to the same account. These are illustrative estimates tied to the proposed policy, not confirmed changes to tax bills.
The column says the Resolution Foundation has argued the measure “would go a long way to rebuilding confidence in our public finances,” while acknowledging it would be “controversial.” Prestridge opposes the idea and says it would place an additional burden on pensioners. The government has not, in the material provided, announced that it will adopt the proposal.
How the proposal could affect retirees
The proposal matters because its two components would not affect pensioners and employees in the same way. A worker paying employee National Insurance could receive an offset for the proposed income tax increase, while a pensioner who pays no employee NI would face the income tax rise without that reduction. The effect would depend on a person’s income and circumstances; the £35,000 example is an estimate cited by Prestridge, not a universal outcome.
It also puts a potential Budget measure alongside other pressures on retirement finances. Prestridge points to tax changes scheduled to take effect next April, including measures affecting inherited pensions, savings interest and property income. The source does not set out the full details or individual effects of those measures, but their timing may add to concerns among people planning their finances.
The issue is politically sensitive because the column links the suggested tax shift to Labour’s 2024 manifesto commitment not to increase National Insurance, income tax or VAT. Whether the government considers the pledge applicable to pensioners in this case, and how it would define the policy, is not established in the source.
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Budget speculation and tax proposals
The source describes the proposal as part of pre-Budget debate, when think-tanks publish ideas and speculation grows about possible tax changes. Prestridge says this year’s rumours have so far been quieter than those before the two Budgets overseen by Rachel Reeves. He recalls speculation about reducing the tax-free pension cash allowance before earlier Budgets; according to his account, people who withdrew money in anticipation of cuts could not reverse those decisions and some faced large tax bills.
On capital gains tax, the column reports that the Financial Times said Healey had rejected aligning CGT and income tax rates. It does not establish that CGT rates will remain unchanged. The current rates cited are 18% for basic-rate taxpayers and 24% for higher- and additional-rate taxpayers on gains above the £3,000 annual exemption. The column also reports Wealth Club research suggesting more than a third of its high-net-worth clients were taking profits ahead of possible rises; it gives no further details about the survey’s timing or methods.
Prestridge says the Resolution Foundation estimated that its proposed support for financially strained families would require £8 billion in tax rises, with additional funding needed for higher defence spending. Those are figures and arguments attributed to the think-tank in the column, not a government Budget costing.
“would go a long way to rebuilding confidence in our public finances”
— The Resolution Foundation, as quoted in Jeff Prestridge’s column
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No Budget decision on the proposal
The government’s position on the “two up, two down” proposal is not confirmed in the source material. It does not say whether Healey has considered or rejected the specific pensioner tax impact, or whether the government intends to introduce any part of the Resolution Foundation’s suggested approach.
The Budget’s date, full contents and final tax decisions are also not given. Prestridge says rumours could intensify nearer the announcement, but that is his assessment rather than confirmation of forthcoming measures. The source also does not provide the detailed assumptions behind AJ Bell’s estimate or the Wealth Club research.
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Watch for the Budget announcement
The next firm update will be the Chancellor’s Budget announcement and any accompanying policy documents. Until then, the proposed 2p income tax rise and matching employee NI cut should be treated as a think-tank recommendation, not a settled policy. Readers will need to check the government’s published measures for confirmation of whether pensioners’ income tax, CGT rates or other retirement-related taxes will change, and when any changes would take effect.
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Key Questions
Has the Chancellor announced a tax rise for pensioners?
No. The source discusses a Resolution Foundation proposal and Prestridge’s opposition to it. It does not report a government decision to raise pensioners’ income tax.
What does “two up, two down” mean?
It refers to a proposed 2p rise in income tax paired with an equivalent reduction in employee National Insurance. The proposal is attributed to the Resolution Foundation.
Why could pensioners pay more under the proposal?
Pensioners do not pay employee National Insurance, even if they continue working after state pension age. They could therefore face the income tax rise without receiving the proposed NI reduction.
How much more might a pensioner pay?
AJ Bell is cited as estimating that a pensioner with £35,000 in annual retirement income could pay just under £450 more. This is an estimate for the proposed policy, not a confirmed tax bill.
Are capital gains tax rates set to rise?
The column reports that Healey rejected aligning CGT rates with income tax rates, citing the Financial Times. It does not confirm whether other CGT changes will be made in the Budget.
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