Boomers are just the beginning – we’ll all be paying more tax soon

Chancellor’s early moves against retirees will likely be followed by more painful policies

Few raised a voice in protest when Rachel Reeves unceremoniously axed the winter fuel allowance for better-off pensioners in one of her first acts as Labour’s newly installed Chancellor.
Even those directly affected seemed entirely relaxed about it. But don’t get too magnanimous about the sacrifice involved, for it may only be a harbinger of a much worse crackdown on pensioner perks to come.
Originally introduced to help combat once rife pensioner poverty by one of Reeves’s Labour predecessors, Gordon Brown, a universally applied winter fuel allowance has long seemed an anomaly.
For higher-income pensioners, the annual payment is often used simply as loose change to buy presents for the grandchildren, and is an entitlement they could easily do without.
But like almost any change to the tax and benefit system, it is likely to result in unintended consequences.
Many pensioners who might have been entitled to pension tax credits but have never applied for them may now be persuaded to do so as a way to make up for the loss of the winter allowance. The savings achieved might therefore be rather less than the Government anticipates.
All the same, the Treasury is desperate for revenue, and means testing the winter fuel allowance was perhaps the least controversial piece of belt-tightening the Chancellor could have opted for. Some pensioners even turned round and thanked the Chancellor for their spanking.
They should be careful what they wish for. Already there is mounting evidence of “boomers” being specifically targeted for the “tough decisions” the Government insists it must make on tax and spend.
A further straw in the wind is the Chancellor’s decision to abandon the annual cap on social care costs. One way or another, it looks as if asset and income-rich pensioners are about to get it in the neck.
Inheritance and capital gains tax are just two of the sources of revenue that Treasury officials regard as ripe for “reform”. For the avoidance of doubt, “reform” in this context nearly always means extracting more. But the even bigger prize would be National Insurance Contributions (NICs).
For the Tories, the over-65s have long been a vital electoral support, and have therefore been deliberately courted with goodies, from the triple lock to free prescriptions and bus passes.
It paid off, too. At the last election, the over-65s were the only age cohort that overwhelmingly preferred the Tories to Labour.
Don’t be surprised, then, when Labour turns round and spitefully targets Britain’s now ageing boomers.
Electorally, Labour has far less to lose than the Tories. Yet there is also something ideological about it. So-called intergenerational unfairness is one of those issues which obsesses the Left, and is fast taking on the role of a convenient cultural substitute for the “class warfare” of old.
In any case, the notion that the elderly have stolen all the cake is about to be weaponised into a catch-all revenue raising justification.
In getting itself elected, Labour made some big promises on tax which have seemingly severely limited its revenue raising options.
The most notable of these was that “Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of income tax, or VAT”.
You would be forgiven for thinking this rules out doing anything at all with those taxes, but that is not actually what the commitment says.
The wording allows for considerable wriggle room, in that although it unambiguously rules out tax increases on working people, and in the rates at which the big three taxes are charged, it does not preclude broadening their scope or decreasing the thresholds at which they become payable.
Of the three, National Insurance provides perhaps the greatest scope for widening the tax base.
It’s very hard to avoid paying income tax and VAT, but there are a number of exemptions for National Insurance Contributions. Income on savings and investments, rental income from property, private pensions, state pensions and other social security benefits are all exempt.
So too are earnings for those at or above pensionable age. Making pensioners liable for NICs on their earnings is one possible source of additional revenue, though it would appear to run counter to the commitment not to increase taxes on “working people” and wouldn’t in practice raise a great deal of money – little more than £1bn, according to estimates by the Institute for Fiscal Studies.
Few people continue to work after the age of entitlement to the state pension, and even when they do, it tends to be either part time or for only a limited number of years.
However, much bigger sums could be raised if NICs were to be levied on pension income, perhaps as much as £5bn to £6bn a year.
At first sight, any such additional tax would appear to be grossly unfair. Why should anyone be made to contribute towards a benefit – the state pension – for which they have already been paying via National Insurance contributions throughout their working lives?
It would further undermine the entire justification for National Insurance as a form of saving for the eventual payment of a state pension in retirement.
The contributory principle may long since have lost its relevance, with NICs these days widely seen as just another form of income tax, but it still has some residual meaning, and this is primarily conveyed by the fact that you don’t pay it once you reach pensionable age.
There is nevertheless a slim measure of logic to the idea that pension drawdown should be made liable to NI’s reach. A pension is merely a form of deferred income, and yet employers pay no National Insurance on the money they contribute towards their workers’ private pensions.
If the Government is not going to tax the money on the way in, it should surely in equity be able to tax it on the way out. This is the way pensions work with regard to income tax; you pay no income tax on contributions, but you do pay it when finally drawing your pension. Bringing private pension income into the National Insurance net would be an extension of the same principle.
Yet it would also have pensioners screaming blue murder. It would be a brave chancellor indeed who tried it on. Even passed off as a way of paying for social care, as suggested by Sir Andrew Dilnot, former head of a government commission on social care, it would be a particularly hard sell.
But don’t entirely discount it. Labour needs the money, and boomer privileges are very much in its crosshairs. Pensioners and workers alike, we’ll all eventually be paying more tax. The mendacity of Labour’s pre-election promises is breathtaking.