When Rachel Reeves started making the “tough choices” she claims are needed to close a £22bn hole in Britain’s public finances, one group of people were immediately in her sights: the elderly.
In her first big act as chancellor, Reeves made it clear that Britain’s “boomers”, courted for years by a Conservative government desperate to shore up its crumbling base, can no longer expect such protection.
The over-65s stayed largely loyal to the Conservatives in last month’s election — they were the only age group who preferred the Tories to Labour — leaving them politically exposed.
Reeves has warned that her decision to remove winter fuel payments from all but the poorest pensioners is just the first of many “tough choices”. She said last week: “I think that we will have to increase taxes in the Budget.”
But Reeves has tied her own hands ruling out increases in national insurance, value added tax, income tax or corporation tax. “Labour will not increase taxes on working people,” the party’s manifesto states baldly.
As Baroness Ros Altmann, a pensions expert, notes: “The only groups that aren’t working people typically are pensioners, some disabled people and children.” She fears that Labour is about to go after the elderly.
Reeves insists she will protect the most vulnerable pensioners — Labour is committed to the state pension “triple lock” and she wants to increase the uptake of pension credit.
But her £1.5bn decision to strip winter fuel payments worth between £100 and £300 from 10mn older people, deemed able to afford to heat their own homes, is a clear signal of intent.
Apart from scrapping some big infrastructure projects, Reeves’s other big saving announced last week was a £1bn move to abandon a plan to cap lifetime costs for adult social care.
Better off older people, especially those with assets, will be an obvious potential target for the chancellor as she starts to put together her Budget.
Edward Troup, former chief executive of HM Revenue & Customs who advised Labour on tax compliance before the election, said the chancellor would be right to shift the tax burden towards older people.
“If you need to raise the tax burden and make the tax burden fairer, which section of the population is looking undertaxed? It’s my generation of baby boomers,” he said.
“Inter-generational equity is not looking good. The generation in their thirties are having to work harder than my generation but have less ability to provide for themselves.”
Reeves will not be oblivious to the politics of this: some 47 per cent of those in the 25-34 age group voted Labour on July 4, more than twice the 23 per cent of those in the 65+ age group.
Recent research by the Institute for Fiscal Studies showed that average pensioner incomes rose much faster than working-age incomes in the years leading up to the financial crash, and have grown at a similar rate since then.
These gains are partly because of increasing coverage of private pensions and rising employment rates among older women. But they are also due to the triple-lock indexation of the state pension.
However, at the same time pensioner poverty has risen, because the elderly have been hit by broader cuts to the value of means-tested benefits and by higher food and energy process.
For a chancellor looking to raise revenues, means-testing of benefits received by better off pensioners is an obvious starting point. The targeting of winter fuel payments on those receiving pension credit showed Reeves is open to the idea.
Curtailing other perks such as free bus passes or NHS prescriptions would be another option, although Stuart Adam at the IFS said such changes would be “small beer” in fiscal terms.
Another proposal long-favoured by the Treasury would be to require older people who are still working to pay national insurance contributions: payments stop at the state pension age, currently 66.
Reeves may have closed down that option, given her pledge not to increase NICs and to protect “working people”. It might also deter older people from carrying on working at a time when the government is trying to expand the workforce.
But Labour has not ruled out increases in wealth taxes, which could fall disproportionately on homeowning pensioners or their heirs. Reeves has only said that she has “no plans” to raise taxes in this area.
The Resolution Foundation think-tank argued in research published last week that reforms to capital gains — possibly aligning CGT and income tax rates — and inheritance tax could together raise almost £10bn.
Caroline Abrahams, of the charity Age UK, said there was “a widespread lack of understanding of what our older population really looks like” and some would face real hardship because of the winter fuel payment cut.
But there is a growing political consensus that the tax system needs to be tilted more in favour of a younger generation, a fact belatedly recognised by former premier Rishi Sunak and his chancellor Jeremy Hunt.
Even though Sunak promised at the election to protect pensioners with a “triple lock plus” policy — a commitment never to subject the state pension to income tax — his government had also started to shift the tax landscape.
Hunt’s biggest tax cut in the last year was a £20bn double reduction in national insurance rates — what he called a “tax on work”. Nobody above the state pension age benefited from the policy.
“We tried to rebalance things,” said one ally of Sunak. “Not that it did us any good.” Reeves, in need of cash and not looking over her shoulder at a big Labour pensioner vote, is likely to go further in the autumn.
This article was written by George Parker, Delphine Strauss and Emma Agyemang from The Financial Times and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.