ALEX BRUMMER: Labour’s big pension lie… They claim to be the party you can trust with

Prior to the New Labour general election landslide of 1997, I learned through reliable City sources that the party’s Chancellor-in-waiting, Gordon Brown, and his economics adviser, Ed Balls, were planning a tax grab on Britain’s pension funds.

Working in secret with the now-defunct accounting firm Arthur Andersen, they were framing legislation that would scrap the tax relief that corporate Britain enjoyed on dividends paid into company pension schemes.

The estimated £5 billion a year that the government would raise via this ploy would then be used by Brown to fund New Labour’s electoral promises.

At the time I was working for the Guardian, and when Brown learned that the paper intended to publish my findings, the man once dubbed ‘the Big Clunking Fist’ by Tony Blair put intense pressure on the publication to hold fire or face dire consequences when New Labour came to power. Cravenly, the Left-leaning paper pulled the story.

It soon became clear why Brown had become so irate. The measure, which was a key plank of New Labour’s first mini-budget, has had devastating consequences.

It effectively killed Britain’s gold standard defined benefit schemes — which paid out a specified pension or lump sum — stone dead.

Labour loves to trumpet the notion that it is the only party to be trusted with our retirement, reminding us that Labour was behind the 1946 National Insurance Act, which created the universal state pension.

But the fact is that nothing could be further from the truth.

All the signs are that, like Brown before it, a Starmer government will wage a savage war on pensioners and their living standards.

Earlier this month, it emerged that Shadow Chancellor Rachel Reeves’s new tax tsar, Sir Edward Troup, had previously described pensioners as ‘codgers’ who have had it ‘ridiculously good’.

He also said it was a ‘complete disgrace’ that pensioners do not pay National Insurance and ‘ridiculous’ that they received free TV licences.

And this week, the Labour leadership weaponised the Conservatives’ effort to make work pay through cuts in employee National Insurance Contributions (NICs) by launching a highly misleading campaign that seeks to put fear into the hearts of older voters by claiming that the scything of NICs will somehow rob them of future benefits.

As Reeves refused to oppose Chancellor Jeremy Hunt’s plan to wipe two percentage points off NICs in his November 2023 autumn statement, this amounts to yet another U-turn by Labour, which has turned them into an art form.

In his March budget, Hunt went a step further by slicing a further two percentage points off the jobs tax — a change that put £900 back into the pocket of the average employee — and revealed that it was the Tories’ goal to abolish the charge altogether.

Reeves has sought to portray this as an unfunded £46 billion promise, even though the reductions announced so far have been funded without the Government breaching the fiscal rules as policed by the independent Office for Budget Responsibility.

The truth is that at the heart of Labour’s assertion that the NIC cuts will jeopardise the future of the state pension, is a big, unvarnished lie. It plays on the mistaken belief that when working citizens pay their National Insurance, they are contributing to a special fund carved out to pay for the NHS and for future retirement.

The reality is that National Insurance on its own goes nowhere near paying for the ‘cradle to grave’ promise of the wartime Beveridge Report. Instead, the cash raised on payrolls from employers and employees goes straight into the Exchequer: it is just another form of income tax imposed exclusively on workers.

In the UK, there is absolutely no tradition of ring-fenced taxes. Titles such as National Insurance, road tax and fuel duty are simply a device used by HMRC to give the impression that funds are devoted to a high-minded purpose, such as ensuring our safe retirement, mending potholes or smoothing the path to net zero.

Moreover, Rachel Reeves is thought to be planning yet another Labour raid on private pensions by capping the sums which ordinary middle-income employees can pay into their pension funds while still enjoying tax breaks.

Needless to say, no such cap is proposed on the retirement income of public sector workers. Some state workers receive pensions worth up to 71 per cent of their final salary — a system of feather-bedding that is costing the Exchequer a whopping £7.9 billion a year.

The total liability for public sector pensions, estimated at £3 trillion, well exceeds the annual output of the entire economy.

For employees of private-sector companies, however, Britain still has one of the meanest state pensions in the Western world.

The Taypayers’ Alliance recently revealed just how badly private sector workers fare compared to their public sector counterparts by taking the example of a female employee, aged 25, who joins the workforce at the national median wage of £35,464 a year and works through to a retirement age of 68.

Based on making the same level of pension contributions throughout her working life, in the private sector she could expect to retire on 19.59 per cent of her final salary.

In the Civil Service, the same worker would get 70.73 per cent of her final salary. 

The Conservatives have made a concerted effort to correct this imbalance through the ‘triple lock’ — the promise that retirees will always benefit from an annual rise which awards them the best possible state pension increase based on whatever is higher: average earnings, consumer price inflation or 2.5 per cent.

So far, Starmer and Reeves have refused to give unqualified support to the ‘triple lock’. There is also concern that they believe that the Tory Government’s decision to lift the £1 million lifetime cap on pension saving is a break too far.

So a new stealth raid on wealth creators is planned which potentially could drive some of our best and brightest people overseas in search of better incomes and unfettered pensions rules.

Far from being the friends of working Britons, as Labour likes to claim, they see private sector retirement funds as sources of revenues to be plundered.

When it comes to National Insurance and retirement, Labour, down the decades, has surrendered all moral authority.

The Great Pensions Robbery: How New Labour Betrayed Retirement by Alex Brummer was published by Random House Business