Labour’s pension strategy is reckless
It is consistent with the mess Labour governments have made of private pensions that the party has committed to overturn the Budget decision to remove the tax-free allowance on lifetime savings. Jeremy Hunt, the Chancellor, announced on Wednesday that the current cap of just over £1 million would be scrapped entirely.
The lifetime allowance is a relatively recent imposition, introduced by Gordon Brown as Chancellor in 2006. It was subsequently lowered by George Osborne and stands around £1 million today. The effect has been to disincentivise high earners from continuing to work to avoid a tax hit of 55 per cent on savings above the limit. This has caused an exodus of experienced doctors from the NHS.
Mr Hunt has sold his reform as a necessary measure to stop this haemorrhage. Asked on BBC Radio Four’s Today programme whether it merely served to benefit the rich, he said: “I don’t think it’s the wrong values to support our NHS.”
But while it may be politically expedient, it should not be necessary to factor every government policy through the prism of the NHS. There is a Conservative argument to be made in favour of encouraging saving that does not only depend on keeping doctors working and confronts Labour’s politics of envy head on.
Inevitably, the Chancellor’s measure will help those earning enough over their careers to accumulate a large pension pot. Many young professionals starting out today will want to save enough to give them a comfortable retirement and pay for medical treatment and care when needed, rather than be a burden on what will, by then, most likely be an impecunious state. An instinct to save is to be applauded, but Labour has never sought to encourage aspiration, which is why the party has been responsible for trashing a pension system once considered world-beating, starting with Mr Brown’s raid on tax dividends in 1998.
Rachel Reeves, who seeks to be chancellor within less than two years, is in a long line of Labour Treasury spokespeople playing fast and loose with our pensions. By pledging to reverse the abolition of the lifetime allowance, she has guaranteed turmoil in the market for the next 12 months. Savers closing in on the cap – including doctors – will retire rather than risk a Labour government reimposing the limit. It is a reckless strategy and one that Ms Reeves, if she is serious about preparing for high office, needs to abandon.