Tax grab on small private pensions will hit 420,000 elderly as living costs spiral

Nearly half a million hard-pressed pensioners will be worse off because of a Government tax grab.

More than 420,000 will be forced to pay tax on nest eggs they have scrimped to build up.

They face bills averaging £320 a year as the cost of food, heating and lighting spirals.

The move also raises the prospect of another Labour rebellion.

Gordon Brown has already been forced into a humiliating climbdown to head off a revolt over the abolition of the 10p tax band, which left 5.3million out of pocket.

Critics blamed the Treasury clawback on 'incompetence' and said it would effectively wipe out the benefit of the annual winter fuel payments of £250 for over-60s and £400 for over-80s.

Ministers admitted the extra bills could place some pensioners 'in difficulty'.

Details of the additional burden were included in a damning report by the National Audit Office on HM Revenue and Customs' accounts for 2006-07.

The report flagged up how about 420,000 people with small private pensions had slipped under HMRC's radar since 1983.

It meant £135 million has gone uncollected every year since 1983, because of mistakes by the Treasury.

The Revenue will now deduct the unpaid tax from their pensions at source beginning in April next year.

But those hit by the changes are still unaware because officials have not yet told them.

Last night MPs and pensioners' campaigners said they were paying the price for government bungles.
 
Liberal Democrat work and pensions spokesman Jenny Willott said: 'It is unacceptable that HMRC blunders should leave pensioners facing a higher tax bill.

'Not content with letting the state pension fall behind the cost of living they are now trying to whittle down private pension saving too.

'It's a tax grab by anyone's standards.'

David Gauke, Conservative Treasury spokesman, said: 'This is just another example of the Government incompetence with the HMRC getting its sums wrong and expecting pensioners to foot the bill.

'Pensioner households have enough to contend with, including soaring food and energy prices, without a nasty £320 surprise waiting to be thrust upon them.'