Labour should think twice before taxing pensioners

Labour, according to Rachel Reeves, is now the party of low taxes. She has said she won’t raise income tax, National Insurance, capital gains tax and corporation tax, as well as ruling out a wealth tax. But that still leaves a few options for jacking up taxes, as one of Reeves’ advisers, Sir Edward Troup has hinted. Last week, Troup, a former head of HMRC, was appointed by Reeves to look at efforts to reduce tax avoidance. This is a slightly ill-timed initiative given that Labour is simultaneously trying to play down the case of a particular taxpayer who stands accused of failing to pay capital gains tax on a former council house she bought and then sold on at a profit (she denies any wrongdoing).

But it is a speech which Troup made in 2019 which is capturing attention – one in which he accused ‘codgers’ like himself of being an ‘under-taxed generation’ who had had it ‘ridiculously good’. He went on to say that people like him (he was born in 1955) have ‘benefitted from low interest rates, high inflation when we bought our houses, we’ve enjoyed good returns on whatever we’ve managed to put into our pension funds. We’re not paying national insurance if we’re still working after the age of 60, and it’s a complete disgrace.’

There’s a slight bit of amnesia, here. Anyone born in 1955 is likely to have bought their first home around 1980 when interest rates were anything but low. True, they will have been able to buy their first home relatively cheaply and enjoyed strong capital gains in the years since. On the other hand, they may well have been caught up in the early 1990s property crash, when rates went up to 15 per cent, many homeowners found themselves unable to pay their mortgages and had their homes repossessed. Such buyers were still being pursued years later in cases where their repossessed homes sold for less than the value of their mortgage debt.

Moreover, while people like Troup, on salary and index-linked public sector pensions have done pretty well, the same is rather less true of people on private sector pensions, some of whom saw them collapse in cases like the Equitable Life scandal. Even if your private pension has avoided that fate, the chances are that you have earned poor returns in recent years as UK shares and bonds have underperformed. Troup’s comments expose the great divide between public sector pensioners and private sector ones – a divide which a Labour government will very likely widen as it pounces with windfall taxes on company profits on which pensioners rely.

Would Labour really do as Troup has called for and make pensioners pay National Insurance contributions? He would be hitting the many people who have found themselves in old age without adequate pensions, and who are having to continue to work as a result. If it is unfair that elderly workers avoid NI while younger workers do not, the Conservatives have an answer for that: to phase out NI altogether in order to eliminate the real unfairness – which is that people who work for a living pay an extra tax which people who live on investments and inherited wealth do not. All Labour is offering, on the other hand, is to clobber a group of people Troup seems entirely unaware of: the elderly who have failed to enjoy the bonanza years which have enriched he and his colleagues in senior public sector roles.