Means-testing the state pension could help fill the defence budget black hole left behind by Keir Starmer – but would be “unjust”, a leading tax expert has said.
In a list of 37 options given to help fund Sir Keir’s Defence Improvement Plan, tax expert Dan Niedle said the move barring the wealthiest from claiming the state pension would raise around £1bn for government coffers.
But he said any chancellor would be unlikely to choose this option because, while looking like “a slam dunk”, it “just feels unjust”.
Instead, the top idea on Mr Neidle’s list is for Mr Burnham to continue the fiscal drag on things like freezing income tax thresholds so more people are included in the higher rates of 40p and 45p, as well as the basic rate of 20p.
Mr Neidle said: “A pension of £12,500 per year, updated with the ‘triple lock’, is actually a highly valuable asset.
“It would cost the average 66-year old somewhere over £250,000 to buy an asset like that. A family ‘just’ in the wealthiest 1 per cent has average assets of £1.9m per adult. So removing their pension would effectively expropriate over 10 per cent of their wealth. That feels unjust. I doubt any chancellor would do this.”
Mr Burnham, who is expected to become prime minister in days, has ruled out breaking Labour’s 2024 manifesto promise to not raise income tax, VAT or personal contributions to national insurance, which in theory fund the state pension.
He has discussed changing business rates in a way which would target large online retailers like Amazon that rely on huge warehouses.
But he has also recommitted to the triple lock on the state pension rising each year by 2.5 per cent or the highest rate of inflation which adds to the burden of the bill.
Mr Burnham needs to find at least £4.7bn to fund the black hole in the defence package and may need to find another £13bn if he is to meet the amount which military chiefs claim is required to prepare the UK for an increasingly dangerous world.
As part of the list, Mr Neidle also suggested that a proposal aired by one of Mr Burnham’s key lieutenants Louise Haigh recently of raising capital gains tax could bring in £6bn.
He noted: “It’s obvious from the charts above that capital gains tax is the single largest way to raise tax without breaking pre-election promises.”
But he warned: “However, it comes with a large catch. A simple rate increase will, on the basis of HMRC figures, lose revenue, not raise it.”
Other suggestions include an exit tax for wealthy people leaving the UK, capital gains tax on top of inheritance tax when people die, an increase in inheritance tax and forcing law firms to start paying employer national insurance. Currently they are exempt because lawyers have partner not employee status.
He also wants Mr Burnham to look at eliminating the loophole on stamp duty for commercial property, introducing a tax for large gifts and force the Bank of England to stop paying interest on its own reserves.
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