I fear a Labour government would raid pensions immediately – just like in 1997, warns JEFF PRESTRIDGE

The General Election sparring has begun – and, for better or for worse, there are another five weeks remaining for the two big political parties to persuade us they are worthy of our vote.

‘God help us, get us out of here,’ I hear some of you cry.

Early indications suggest we are going to be in for some big left-field surprises as Labour and the Conservatives (in particular) vie for our attention.

Rishi Sunak has so far pulled the biggest rabbits out of the hat. Last weekend, he said the Conservatives would introduce compulsory National Service for 18-year-olds if they won the July 4 election.

Sir Keir Starmer and Rishi Sunak are battling it out as we head towards the General Election 

Sunak then followed this up with a £2.4 billion plan to protect state pensions from tax. This would be done by guaranteeing that pensioners’ personal allowances would always be higher than the level of the new state pension.

Baroness Ros Altmann, a champion of the elderly, said she was ‘delighted’ with the move.

Between now and July 4, there will be plenty of plans announced, as Sunak attempts to convince the nation that the Conservatives are worthy of governing for another five years. After all, it is Sunak who must do all the running to chip away at Labour’s massive lead in the polls.

While he must go on the offensive, Labour is likely to remain in mute mode. So far, its approach is not to do or say anything that will enable the Tories to claim it is little different to the free-spending, wealth-hating, Corbyn-led Labour Party that it pulverised in the 2019 election.

In recent days, Sir Keir Starmer’s financial lieutenant Rachel Reeves has gone out of her way to appease middle-class voters.

Writing in the Daily Mail, she said: ‘My first step in government will be to deliver economic stability with tough spending rules so we can grow our economy and keep taxes, inflation and mortgages as low as possible. I do not believe you can tax and spend your way to growth, and I didn’t come into politics to raise taxes on working people.’

Twenty-four hours later, she confirmed that neither income tax nor National Insurance rates would be increased if Labour won the election. Hip hip hooray.

Sir Keir Starmer’s financial lieutenant Rachel Reeves (pictured outside the Bank of England) has gone out of her way to appease middle-class voters 

Tony Blair pictured after the 1997 election, when Labour failed to tell the electorate that the first key policy it would implement if it got into power was a £5 billion annual tax raid on company pension schemes

Of course, we will learn more about the intentions of Labour and the Conservatives when they publish their manifestos early next month. I imagine the Conservative manifesto will be bold and politically sexy (nothing to lose) while Labour’s will be as dull as ditchwater (nothing to gain by giving too much away).

Of the two, the direction of travel for the Conservatives is easier to discern. In terms of taxes, it has already vowed to keep chipping away at National Insurance rates – rather than merely stating (as Labour has done) that they will not rise again.

And, dependent upon the economy continuing its upward trajectory, I am sure it will pledge to unfreeze income tax thresholds for all – not just the elderly. Too many hard-working people have been dragged into paying higher income tax.

As we stand, the current thresholds are set in stone until 2028. The Tories, who introduced them in the wake of the pandemic and lockdown, must vow to unwind them as soon as possible.

It’s an issue many Daily Mail readers are vehemently passionate about. Failure to act would be a big vote loser.

The Conservative manifesto is also likely to promise cuts to both stamp duty on home purchases and inheritance tax – policies that might well have already been implemented were it not for the financial mess left behind by Liz Truss’s brief reign as Prime Minister.

As for state pension payments, the Conservatives have already vowed to keep the triple lock if they win the election – thereby ensuring the pension rises by the higher of inflation, average earnings growth or 2.5 per cent.

For Labour, it will be what goes unsaid in its manifesto that will be of greatest interest. Apart from Reeves’s reassuring weekend comments on income tax and National Insurance, we know that Labour wants to levy 20 per cent VAT on school fees. It also wants to ensure non-doms pay their fair share of tax – while hitting oil and gas producers with a ‘proper’ windfall tax.

Like the Conservatives, it has also committed to keeping the triple lock in place. Yet, so far it has been quiet on whether it intends to spread the National Insurance net to include pensioners in receipt of state pension.

Sir Edward Troup, Reeves’s tax tsar, has previously said that it is a ‘complete disgrace’ that pensioners do not pay National Insurance (for that matter, he also said it was ‘ridiculous’ that they received free TV licences). Maybe he’s bending Reeves’s ear on these issues at this very moment.

What could the election mean for your money? 

The Prime Minister put an end to all the speculation this week by giving us the date for the general election: July 4.

That comes as the latest inflation reading was 2.3 per cent, a little above forecasts making a base rate cut next month now unlikely.

Simon Lambert, Georgie Frost and Lee Boyce delve into the economic state of affairs and what the upcoming election could mean for your money.

Press play to listen to the episode on the player above, or listen (and please subscribe and review us if you like the podcast) at Apple Podcasts,  Audioboom and Spotify or visit our This is Money Podcast page.  

The Labour tax raid in 1997 

Labour has history when it comes to omitting vital policies from its manifestos.

Back in 1997, Labour failed to tell the electorate that the first key policy it would implement if it got into power was a £5 billion annual tax raid on company pension schemes.

It duly won, launched the tax raid (scrapping the tax relief that UK companies enjoyed on dividends paid into their pension schemes) and idly stood by as deluxe company pension schemes (so called defined benefit plans) withered on the vine.

In some cases, this tax raid was ultimately responsible for tens of thousands of workers losing a large chunk of their promised pension when their employers went bust in the early 2000s, leaving in situ a company pension scheme with insufficient assets to honour all of its commitments to workers.

So far, like 1997’s New Labour dream team of Blair and Brown, Starmer and Reeves have said little about wealth-related taxes. This suggests that an assault on our pensions and wealth could well be around the corner.

Jeremy Hunt scrapped this lifetime allowance (set at £1,073,100), but Reeves has already said she will bring it back 

The wealth weapons Reeves could use 

There are various wealth assault weapons Reeves could employ to fund her party’s spending plans (including 1.5 million new homes and the creation of state-owned Great British Energy, a provider of green power).

She could reintroduce the cap on the amount wealthy individuals can save inside a pension fund without incurring extra tax charges. Jeremy Hunt, Chancellor of the Exchequer, scrapped this lifetime allowance (set at £1,073,100), but Reeves has already said she will bring it back.

She could overhaul the tax relief that workers enjoy on the contributions they make into their pension funds so that the percentage rate is the same for all, irrespective of whether they are a basic or higher-rate taxpayer. Currently, the system favours higher earners – something that I am sure irks Reeves.

She could also increase the taxes that investors pay on share gains and dividend payments so that they are aligned to income tax rates. On dividends, for example, a basic-rate taxpayer currently pays tax of just 8.75 per cent on income above the annual £500 tax-free dividend allowance – while a higher-rate taxpayer pays 33.75 per cent. These could be pushed up to 20 per cent and 40 per cent, respectively.

More controversially, she could restrict the amount that savers and investors can put into tax-friendly Individual Savings Accounts (ISAs). Currently, the annual limit for adults is £20,000.

All food for thought as we hurtle towards July 4.

  • What issues that affect your finances would you like the two big parties to prioritise in their manifestos? Email [email protected]

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