Political hara-kiri

Chancellor is warned that pension raid would be suicidal

PHILIP Hammond was warned last night that a Budget raid on pensions would amount to ‘political hara-kiri’ for the Tories.

The Chancellor faced a Conservative backlash over reports he plans to launch another raid on pensions tax relief in next month’s Budget to fund tax cuts for the young.

Mr Hammond is said to be examining the idea as part of a package to address socalled ‘inter-generational fairness’.

The Chancellor has warned fellow ministers that the tax and benefits system is tilted in favour of older people and needs adjusting. Under one proposal tax relief on pensions would be cut for older workers, with the proceeds used to fund tax breaks for workers in their 20s and 30s. Some Tories believe the idea could help the party win back support among the under-40s, who backed Labour heavily at the June election.

But others warned the move would cause further damage to the pensions system and risk alienating existing Tory supporters.

Pensions Secretary David Gauke is understood to have warned the Chancellor that major reform of pension tax relief would be politically impossible given the Government’s narrow majority.

One senior MP said the idea of penalising older people to help the young raised fresh questions about Mr Hammond’s judgment. ‘The Chancellor is under pressure to demonstrate he has got ideas and save his job,’ he said.

‘But a tax policy that takes from our voters and gives to theirs is the political equivalent of hara-kiri. It just raises more questions about his judgement.’ Former Tory pension minister Ros Altmann said it would be ‘very odd to alienate people who do vote for you in order to help people who don’t’.

She added: ‘There is a problem with housing, there is a problem with student debt, but why not address those things directly rather than trying to find a complicated way of helping them that penalises others?

‘The lesson from the election manifesto is that punishing the old is not a sensible way to attract younger voters, but is a recipe for losing support of older generations.’

Baroness Altmann said there was ‘a good case’ for a wholesale reform of pension tax relief.

But she warned against ‘piecemeal’ tinkering and said any significant reform was likely to prove politically impossible.

Pension tax relief is worth about £50billion a year, with two-thirds of the money going to those earning over £45,000 a year, bringing allegations it acts as a subsidy to the better off.

Treasury officials have been pushing for cuts to pension tax relief for years, leading to a series of salami-slice cuts. The amount people can save before losing tax relief has been cut back repeatedly in recent years and could face further cuts next month.

But George Osborne backed off from major reform last year when he was Chancellor after Tory MPs warned they would vote down his plans. Mr Hammond now appears to be facing a similar backlash.

Tory MP Jacob Rees-Mogg warned the Chancellor against another raid on pension tax relief.

‘The constant fiddling with pension relief has become a major disincentive to save,’ he said. ‘Our saving rate is already very low and we should not be doing anything to discourage more people from saving for later life.

‘As a matter of principle I also think government should not be about setting up the young against the old. We need policies that help all sections of society rather than measures that risk dividing people.’

The Treasury declined to comment beyond describing reports of a fresh raid on pension tax relief as ‘pure speculation’.

But some Tories are urging Mr Hammond to act. Nadhim Zahawi, who recently called for income tax for the under-30s to be cut to 10 per cent, said the Treasury was in ‘listening mode’ on the issue. And former Tory minister Lord Willetts said the party had to act to rebalance the tax system towards younger people.

‘Anything that rebalances and helps younger people I would be in favour of,’ he said.

Young people are being forced to rack up huge debts to pay for basic necessities, the boss of the City watchdog has warned.

Financial Conduct Authority chief Andrew Bailey said the high cost of living was forcing some consumers to fund essentials such as groceries and rent with credit cards or payday loans. But he does not believe debt levels are dangerous for the economy at present.

It came as researchers from accountants PwC warned that on average 25 to 34-year-olds have credit card, personal loan and car finance debt equivalent to more than half their annual income.

‘Setting the young against the old’

TERRIFIED by Jeremy Corbyn’s success at luring young people into the Labour fold with his false promises, the Tories are desperately exploring ways of winning them over. The dangers of doing so at the expense of their core vote can hardly be overstated.

The pro-Labour surge is seen as proof of growing resentment among the young that they don’t have the advantages enjoyed by older generations – free higher education, affordable homes, generous pensions.

So in a bid to redress the intergenerational balance, Chancellor Philip Hammond is said to be planning a raid on older taxpayers in next month’s budget, to fund tax breaks for young workers.

This may take the form of yet another attack on pension relief – reducing the amount people can save tax-free each year, or cutting the lifetime allowance.

But Mr Hammond should beware. There are two huge pitfalls in this approach.

Firstly, the pension system has been so mercilessly fleeced by successive chancellors since 1997 that it’s already in crisis. Another hit could fatally undermine trust in saving for retirement.

Secondly – and more crucial politically – older people tend to be Tory supporters (61 per cent of over-50s voted Conservative in the election). So an attack on pension relief is an attack on the Tory grassroots. Has the Chancellor any concept of how dangerous it is to take these people for granted?

Just look back to the general election. Manifesto proposals for a ‘dementia tax’, means-testing the old people’s heating allowance and breaking the pensions triplelock incensed traditional supporters so deeply that many deserted the party. After seemingly cruising to a landslide, the Conservatives lost their majority.

Mr Hammond should also remember what a disaster his first budget was, after he tried to increase national insurance contributions for another huge group of traditional Tories – the self-employed.

When told this would be a breach of manifesto commitments, he was forced into a humiliating U-turn.

Another shambolic performance this time will surely cost him his job.

The Mail has this message for him: Young people want affordable houses, well-paid jobs and manageable student loans. They won’t be bought off with token tax breaks.

So don’t alienate your bedrock supporters in a fruitless quest for the youth vote. It would be an act of senseless self-harm – and won’t achieve its objective anyway.