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Pensioners will be £800 a year worse off if Rachel Reeves extends the income tax threshold freeze in this week’s Budget, new analysis reveals.

The Chancellor is widely expected to extend the measure by another two years to 2030 in her Budget on Wednesday.

But the move would cost pensioners around £7 billion a year in 2029 and 2030, according to research by the House of Commons Library.

It comes as separate analysis shows that more than half a million extra pensioners will be dragged into the tax net under Ms Reeve’s plans.

This means around 9.3 million, or just over three-quarters of all pensioners, paying tax compared to 8.7million today.

Campaigners warned that extending the freeze on tax thresholds would break Labour’s manifesto pledge not to raise taxes for working people.

Dennis Reed, director of over-60s group Silver Voices, said: “This smash and grab tax hike on pensioners must be stopped.

“If Rachel Reeves’s plans are enacted in the Budget an extra £14 billion a year will be burgled from pensioners’ pockets by 2030, money that should be used to meet rising energy and food costs and to help grow the economy.

“Make no mistake, extending the freeze on lower tax thresholds is a major breach of the Labour manifesto, where no increases in income tax were promised.

“Freezing allowances is the same as raising income tax rates in terms of the effect on standards of living.

“Much of the £800 a year tax hit on older people will come from taxing the state pension and any triple lock increases, making a mockery of the formula to prevent rises in pensioner poverty.”

Mr Reed raised fears that OAPs with no income other than the state pension are set to be dragged into paying income tax due to frozen thresholds.

He added: “If Rachel Reeves extends the freeze on personal allowances it will amount to a declaration of war on older people.”

The research, commissioned by the Liberal Democrats, found that the tax threshold freeze has cost pensioners £41 billion since it was brought in by the Tories in 2023.

It was due to be lifted in April 2028 but there are reports that the Chancellor is set to extend it until 2030.

Lib Dem work and pensions spokesperson Steve Darling said: “This is a stealth tax bombshell that will hit pensioners hard, leaving those affected £800 a year worse off – and Labour is poised to make that nightmare even worse.

“Rachel Reeves once called extending these tax thresholds a policy that would ‘hurt working people’.

“Now it’s clear she’s getting ready to copy the economic vandalism of the past.

“The Chancellor must stand by her word, rule out an extension to this outrageous tax freeze at the Budget, and stop hammering pensioners who have already been left out in the cold by skyrocketing energy prices and the disastrous winter fuel payment scandal.”

Karen Hill, 70 from Wiltshire, said she is finding it “impossible to live” on her state pension and small aviate pension.

She said: “It’s frightening, with just the state pension and a very small private one I barely scrape over pension credit levels.

“It means I limit how many showers I have. I do not put the central heating on. The taxes and actions this Government has put in place have made life miserable.

“I don’t ever take holidays or buy anything except essentials. I do not go out, drink or smoke yet the Government is making it impossible to live. It is the most miserable time I have ever lived in.”

Former pensions minister Sir Steve Webb there has been a “surge” in the number of pensioners paying tax and that will increase further under the chancellor’s freeze extension.

Sir Steve, a partner at pension consultants LCP, said: “A combination of high inflation and frozen tax thresholds has led to a surge in the number of pensioners paying tax, and in the numbers paying at 40% or above.

“If the Chancellor decides to freeze thresholds for another two years, we will see at least half a million more pensioners dragged into the tax net as a minimum, taking the total to around 9.3million – three quarters of all pensioners.

“But if inflation or wage growth picks up, that total could reach 10million pensioner taxpayers by the end of the decade”.

He added that the majority of today’s pensioners retired under the old state pension system and around 2.5million of them already have a state pension above the income tax threshold.

But from 2027/28, anyone on the full rate of the new state pension will also be above the tax threshold based on their state pension alone.

Sir Keir Starmer last week refused to rule out freezing income tax thresholds at the Budget.

The Prime Minister decided to answer repeated questions by Tory leader Kemi Badenoch during PMQs.

The Chancellor is widely expected to hike taxes on November 26 as she scrambles to fill a black hole in the public finances.

But Ms Reeves told MPs in her Budget last year that extending the freeze would “hurt working people” and “take more money out of their payslips”.

In her budget the Chancellor will highlight that 13 million pensioners will benefit from an above inflation rise to the state pension next April because of the Triple Lock

Those on the full rate of the new state pension are set to receive more than £550 a year.

Ms Reeves said last night: “Whether it’s our commitment to the Triple Lock or to rebuilding our NHS to cut waiting lists, we’re supporting pensioners to give them the security in retirement they deserve.

“At the Budget this week I will set out how we will take the fair choices to deliver on the country’s priorities to cut NHS waiting lists, cut national debt and cut the cost of living.”