The basic state pension could be taxed at source under a proposal that would fuel the pensioners' revolt against the "granny tax" announced in last month's Budget.
The state pension, which rises from £102.15 to £107.45 a week today, is taxable but it is currently paid without tax being deducted immediately. Under the plan, which would force many pensioners to change the way they plan their household budgets, it would be subject to the 20 per cent basic tax rate at source, reducing it to £85.96 a week for millions. Wealthier pensioners on the 40 per cent tax rate would receive £64.47 a week.
The reform is being considered by the Treasury's tax advisers, who will report to George Osborne later this year in time for him to include any changes in next year's Budget.