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How much income tax you'll have to pay if 2p rise announced in Budget

The Chancellor has given her clearest signal yet that she plans to increase income tax

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Ms Reeves outlined her key objectives as cutting debt, backing the NHS and tackling the cost of living crisis(Image: PIKSEL via Getty Images)

Pensioners and landlords are poised to shoulder the burden of a potential income tax rise that could hit typical earners with bills worth hundreds of pounds annually. Chancellor Rachel Reeves has delivered her strongest indication yet that she's willing to abandon Labour's election promise not to increase income tax, VAT or National Insurance, declaring "we will all have to contribute" to rebuilding Britain's economy.

Speaking from Downing Street, Ms Reeves outlined her key objectives as cutting debt, backing the NHS and tackling the cost of living crisis. She continued: "Each of us must do our bit for the security of our country and the brightness of its future."

Her remarks have sparked rumours that the Chancellor is plotting a 2p hike in income tax for this month's Budget - potentially balanced by a 2p reduction in National Insurance.

[Worried senior couple calculating domestic finances using laptop and reviewing bills at home]

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Pensioners and landlords are poised to shoulder the burden of a potential income tax rise(Image: Daniel de la Hoz via Getty Images)

Such a manoeuvre would mean employees earning below 125,140 could see their take-home wages stay roughly unchanged, as the levy they currently pay through National Insurance would simply be collected via income tax instead.

But those exempt from National Insurance payments notably pensioners and property landlords would face substantially higher costs. Research by the Resolution Foundation suggests a 2p income tax increase paired with a 2p National Insurance reduction could generate approximately 6 billion annually, predominantly from pensioners and property investors.

Adam Corlett from the think tank said: "This solution would leave employee tax rates unchanged, but would be a significant step in reducing disincentive to employment."

He said it would also "target pensioners and landlords with higher tax bills because they do not pay national insurance".

A pensioner on 27,500 would face a 298 annual hit if the basic rate of income tax climbed by two percentage points, according to accountancy firm Blick Rothenberg. Someone earning 35,000 would shell out roughly 450 extra, slashing take-home pay from 28,721 to 28,271.

Those on 60,000 would forfeit 754 annually, whilst a 100,000 earner would pocket 67,807 rather than 68,561. For landlords, the blow would be equally severe.

A property investor with 50,000 in rental profit would surrender approximately 750 yearly, climbing to 1,250 for 75,000 profit and 1,750 for 100,000 - equivalent to nearly 150 monthly. Michael Browne from investment firm Franklin Templeton said: "Reeves's speech suggested an austere budget with tax increases focused on non-inflationary measures, specifically income tax."

He argued that targeting higher earners and investors threatened to drive wealth abroad.

"Economic growth is unlikely any time soon, and taxing the wealthy will mean that many move to countries with less hostile tax environments," he said.

The proposal would also arrive as millions of pensioners are pulled deeper into the tax net due to frozen thresholds. The new state pension, expected to climb to 12,548 next April, will sit just 22 beneath the tax-free personal allowance, meaning more retirees will soon pay income tax for the first time. HMRC data reveals that 8.7 million pensioners are already subject to income tax, with 904,000 in the higher-rate band.

Back in 1980, the basic rate of income tax stood at 30%, but despite rates dropping to 20% today, frozen thresholds and stealth increases elsewhere have resulted in taxpayers shelling out more overall.

David Goodfellow from Canaccord Wealth said: "Taxes sneak on in other places, like capital gains and inheritance tax. The short-term solution has to be increasing income tax, and the government has to swallow negative headlines and voter displeasure."

Economists predict that a one percentage point rise in all three income tax bands would generate 10.9 billion annually by 202930, with 8.5 billion stemming from the basic rate alone.

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