Hunt’s rabbit from his hat catches Labour on the hop
Opposition took time weighing up policy until coming out wholly against the ‘giveaway to rich’
IT WAS the main rabbit out of the hat in Jeremy Hunt’s Budget – that the Government would scrap the limit on the amount that professionals can save into their pensions before being taxed.
After the Chancellor sat down in the Commons on Wednesday, Sir Keir Starmer – responding for Labour – was careful not to commit to reversing the tax giveaway, which is designed to encourage people back into the workplace.
But just hours later, at a post-budget meeting of senior party figures, Labour decided to come out wholly against it.
Now the Conservatives believe the party has made a big mistake, after experts warned the announcement risked kicking off “panic buying” for pensions before a rush for early retirement if Labour wins the election.
Figures in the Treasury were last night bemused at the party’s decision to go down this route. So how was the decision reached?
Mr Hunt’s surprise announcement was a centrepiece of his Budget. At present, people have to start paying tax on their pension pots once they exceed £1.07million. The cap has been blamed for encouraging many professionals – including NHS doctors – to retire early because it makes it no longer worth their while to stay in work.
It had been expected that Mr Hunt would significantly increase the cap, perhaps to as high as £1.8billion, where it stood before George Osborne cut it during the coalition era.
But instead he said he would get rid of it altogether, while increasing the annual allowance from £40,000 to £60,000. In his response, Sir Keir was notably circumspect, saying: “We will look at what the Chancellor has announced today.
“On pensions, the Chancellor made a big spending commitment that will benefit those with the broadest shoulders when many people are struggling to save into their pensions.
“We needed a fix for doctors, but the announcement today is a huge giveaway to some of the very wealthiest.
“The only permanent tax cut in the Budget is for the richest 1 per cent. How can that possibly be a priority for this government?”
There was no pledge to reverse the announcement until the afternoon, when key figures from the office of Sir Kier and Rachel Reeves, the shadow chancellor, held a meeting.
A Labour source said Sir Keir had not announced the policy in the Commons because he had been caught on the hop as the Opposition gets no advance sight of the Budget.
During the Chancellor’s speech, aides watching it on television texted Sir Keir and Ms Reeves to offer advice on ways that the prepared response may have to be changed. Because of the surprise nature of the announcement, the aides recommended that no announcement be made.
A Labour source said: “We weren’t expecting the cap to be lifted altogether, so that caught Keir by surprise. So it was decided that it was best to go away and digest all the details, before making any announcement.”
After the Budget, key Labour figures held a two-hour meeting to decide how to respond to the measures.
The source said: “We spent a couple of hours discussing what was in the Budget and the instinct was that it should not be a priority for us to agree with this policy at a time when taxes for everybody were going up.”
Right from the start, Labour recognised that doctors would have a separate pensions cap because the threat of them taking early retirement would put huge pressure on the NHS.
Such a policy had been announced six months earlier when Wes Streeting, the shadow health secretary, told The Daily Telegraph that the cap on doctors’ pensions was “crazy”.
He said he believed the move would reduce waiting lists “and will inevitably save lives”.
The Labour source said: “Wes had already said that doctors needed a bespoke agreement, and we had seen the British Medical Association calculations on that, so it was clear we could have a scheme for them which would cost far less.
“So we worked out our position, and as it was clear that the public would ask whether this was something we would reverse, we decided we wanted to address this head-on.”
The source said: “It was such a politically bizarre move to do it, for the only permanent tax cut to be that. It is a strange bung that not many people were asking for.”
And so it was that at 9.15pm on Wednesday night, Labour put out an embargoed press release announcing it would reverse the move.
Ms Reeves said the Government’s “£1billion pensions bung for the 1 per cent” would widen the cost of living “chasm”.
“At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people.
“That’s why a Labour government will reverse this move. We urge the Chancellor and the Conservative Government to think again too.”
The press release also revealed that the party would encourage doctors to stay in work by creating a targeted scheme as the Government has done for judges, rather than create a free-for-all for the wealthy few.
Labour’s calculation seemed to be that the public would turn against the policy just as it had done with Liz Truss’s plan to scrap the 45p tax rate.
Inside the Treasury, there was bemusement that Labour had made such a cast iron pledge to reverse the Chancellor’s announcement.
They believed the public was on the Government’s side when it came to doctors’ pensions and the need to protect the NHS.
In the morning, pensions experts began to question Labour’s position, saying it could actually hamper the Government’s back to work drive.
Andrew Tully, of the pension provider Canada Life, said: “You simply can’t play political ping pong with the pensions system. People plan for the long term and that relies on confidence the goal posts won’t constantly shift. “We need cross-party consensus on issues like this.”
On Wednesday, Jeremy Hunt, the Chancellor, said:
“I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most. As Chancellor I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons.”
Yesterday, Rachel Reeves, the shadow chancellor, said: “The Budget was a chance for the Government to unlock promise and potential. But the only surprise was a £1 billion pensions bung for the 1 per cent, a move that will widen the cost of living chasm. At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people.”