Labour has no choice but to pick the pockets of baby boomers like me

Starmer Reeves
Rachel Reeves says that she has no plans to raise the rate of income tax, National Insurance, corporation tax or even VAT - Christopher Furlong/Getty Images Europe

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Once again, we are going into an election with politicians from both the Conservative and Labour parties making promises that they may not be able to keep.

Whether it is a promise about how they will spend our money or a commitment not to raise tax rates, the truth is that it is difficult to know what the economic position will be next year, let alone over the life of a Parliament. Who in 2019 expected a pandemic and a war in Ukraine?

I would much rather have a statement from politicians that they will spend our money wisely and not raise taxes unless really necessary. Rachel Reeves says that she has no plans to raise the rate of income tax, National Insurance, corporation tax or even VAT.

Despite some considerable spending commitments, she claims that her plans are fully costed. When VAT was introduced in 1972, the intention was that it could act as a regulator to help control fiscal imbalances in the same way that interest rates can help control monetary imbalances.

I accept that it has not worked out like that, but to make a promise now on the VAT rate seems unnecessarily restrictive.

I question whether keeping to such commitments is realistic. Wiser heads than mine have commented on this. Rupert Harrison was the key adviser to George Osborne in his time as chancellor and is a Conservative candidate in the coming election.

His view as a seasoned observer of past government promises is germane: “I’ve run tax policy for two elections and ‘no additional tax rises needed’ is classic wording that does not rule anything out. It’s what you say when you’re keeping your options open. It doesn’t bode well for Labour’s ability to stick to a position.”

I should also mention the article by Brian Monteith referring to the fascinating analysis by Bob Lyddon in distilling earlier comments by the shadow chancellor into a paper called “Decoding Rachel Reeves”.

All that is, however, is by way of background to the key question about who is going to finish up paying. Assuming the polls are correct, that will be a decision for Rachel Reeves to make. She repeatedly says that Labour will support “working people”.

What I want to know is who it is outside this category that will be targeted for the extra tax? We are no longer a country awash with a class of landed gentry to raid, as her expression seems to imply.

She has committed to supporting business and not to raise corporation tax, so who is left with sufficient money to tax? My fear is that Labour already have pension funds in their sights. Remember that they have form on this courtesy of Gordon Brown’s notorious raid on pension funds after the 1997 election. I also suspect that wealthier pensioners will be hit.

One of the team on tax policy for Labour is Sir Edwards Troup, former executive chairman of HMRC. It is his view that “old codgers”, as he calls them, should pay more tax.

He said: “I’m a baby boomer and we have had it ridiculously good. We’ve benefited from low interest rates, high inflation when we bought our houses, we’ve enjoyed good returns on whatever we’ve managed to put into our pension funds. I am part of an under-taxed generation, so I’m afraid we are going to have to look at the more senior members of society.”

He apparently fails to appreciate that it is not easy to save lots of money in a pension and that few outside the public sector now enjoy index-linked final salary schemes. I also question his memory on interest rates. I am one of this group and remember paying 12pc on my mortgage, and it would have been higher had I not been on a fix. Nevertheless, his strategy is clear.

My guess is that Labour regards the property wealth of pensioners as a suitable target. I understand that some will see this as fair. If you are in your 20s with a large student loan hanging over you, and little hope of buying your own home any time soon, it may seem entirely logical to seek more money from pensioners. The problem is that property wealth in your home does not translate into realisable assets from which to pay more tax.

Where pensioners have managed to accumulate pension funds and other savings, this will usually be needed to provide income to supplement their state pension.

I would accept that many pensioners now live in larger houses than they needed when their children were at home. However, downsizing to release cash is both expensive and disruptive, not helped by stamp duty costs.

Another concern I have is over additional complexity for this group.

Pensioners often have more complicated tax affairs in retirement than when they were in work. As an employee, most tax paid will have been through PAYE with adjustments to tax codes to reflect other modest income sources. Once retired, they may receive an occupational pension as well as the state pension. They are more likely to have savings income, possibly rental income and perhaps some part time earnings or self-employment to top up their finances.

What they do not need is more complexity, which the Conservatives seem to have in mind.

As already explained by Ben Wilkinson, Rishi Sunak’s “triple lock plus” proposal to protect pensioners from paying tax on the state pension is effectively a reintroduction of age-related personal allowance. It would almost certainly come with a taper, to reduce it for those who have other income, with all the related complexity.

It takes me back to 2011 when I was invited to join a subcommittee of the Office of Tax Simplification (OTS) looking into the position of pensioners. At the first meeting the chairman, a Treasury minister, invited us in turn to suggest simplification ideas.

I explained that the age-related allowance taper confused many pensioners. At the time, personal allowances were increasing rapidly in accordance with the coalition agreement with the Liberal Democrats.

I suggested that if the age-related allowance was frozen it would soon disappear completely and remove the problem, but I empathised that the savings made would need to be allocated to the basic state pension or the media would condemn it as just another tax grab.

The chairman told me in no uncertain terms that the likely media response was a matter for ministers, not me. My suggestion finished up in the OTS report and this was subsequently taken up by George Osborne in his 2012 Budget, although without any mention of how the savings would be allocated.

I was at the Telegraph offices that day and remember the immediate reaction to this proposal as a  “Granny Tax”. That became the headline in the paper the following day. Given the state of the polls the triple lock plus is unlikely to see the light of day but, as Ben said, it really does not reflect well on the government for allowing this issue to arise in the first place.

Mike Warburton was previously a tax director with accountants Grant Thornton and is now retired. His columns should not be taken as advice, or as a personal recommendation, but as a starting point for readers to undertake their own further research. Email your tax questions to Mike: