How Can We Protect Universal Pensioner and Working Age Benefits Against More Stringent Means Testing by the Treasury ?

Editor's Note: 

Now that Labour's October 2024 'Disaster Budget', as some still call it, is long past, and its full depressive effects on industry are feeding through, it is to be hoped that the leadership will have learnt its lesson. The inevitable drubbing Labour received at the hands of Reform at the May local elections will also have left back-benchers in fear of losing their jobs in 2029. 

More inflationary pay claims, although temporarily in abeyance over the winter and spring, are now starting to resurface, with the BMA already gearing up for industrial action in the face of an already above-inflationary pay offer somewhat  north of 5%. ASLEF, as always, are grumbling for yet more for their deprived 45% taxpayers and you can be sure  there will be plenty more demands, and no doubt cave-ins by Starmer, in the name of 'industrial peace' before the year is out. Tax rises are therefore inevitable in October to fund all this largesse for public sector workers, and all the other public sector spending commitments Labour have taken on, despite their 2024 manifesto commitments. 

The 'off the wall' suggestion of a 0.5% voluntary levy on pre-tax salary is thus becoming increasingly attractive as a way to head off the swingeing benefit cuts still planned for some in the benefits bill...and avoid defeats at the hands of their increasingly rebellious back benchers. Starmer has just just shied away from a damaging vote on the bill following what amounted to an 'ultimatum' from 126 of his MPs, so the government must be aware of the danger they are in, despite their huge apparent majority, which, as we saw this week, is wholly dependent on an increasingly powerful and vociferous left-leaning back-bench cohort. The Momentum revolution may be closer than Starmer realises...time will tell.

The lesson of history - for any government - is clear...don't mess with pensioner benefits...it will always come back to haunt you. 

See also the article on the threat of state pension means testing in this year's budget

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This particularly thorny question is the subject of much discussion at present. It has also resulted in many sleepless nights for many of our pensioners and for single occupiers of all ages, who now fully expect to lose some or all of their entitlements on October 30^th.

There is little doubt that Starmer and Reeves are planning to use the ‘Tory Black Hole’, as they call it, to justify both swingeing benefit cuts and tax rises in the Autumn Statement.

 The size of this new ‘celestial’ phenomenon is reputed to be £22Bn, although it should be noted that the calculations supporting it have never been fully verified. To put the amount properly in context, the calculation was based on an audit performed by the treasury in July, comparing the Spring Budget Forecast of £1226 Bn for total public spending with a post-election updated estimate by Labour. If this is correct, the difference would represent only a 1.8% underestimate of spend (i.e. well within 'experimental' error for a statistical forecast six months in advance). We know the figure also includes the £9 Bn estimated to be required to fund recent and well-publicised above-inflation pay rises, so that arguably the size of the inherited  i.e. ‘Tory’  black hole should for the sake of accuracy be quoted at £13 Bn, pending full verification.  ASLEF and RMT secured a 14% increase over 2023 levels for their train drivers, much of it backdated to 2023. The BMA’s Junior Doctors have done even better percentage-wise, securing a guaranteed 22% increase over 2 years. So we can all see where the acute need for cash to 'balance the books' has really come from….a deliberate policy of favouring of public sector workers over everyone else.

There is, of course, another way to generate extra revenue for the treasury without cutting yet more of our benefits….

 At risk of being accused of providing somewhat ‘off the wall’ suggestions, I’ll put this one forward. I think it could provide an answer in the short and medium term, as well as performing a useful ‘social experiment’ which should help us determine the state of our collective philanthropic conscience, and that of the beneficiaries of Starmer's public sector 'largesse'.

 As indicated, the pay settlements Starmer has sanctioned so far are all well above the current rate of inflation, and several of them apply to some of the most well-off workers in our society. While I won’t dwell further on the morality of a new and naive government  caving in to the demands of powerful unions in this way, at a time when the pensioner population is still smarting from the loss of their £200-£300 Winter Fuel payment, the fact remains that he has done so. 

 It looks like Starmer will continue to extend the same privilege to virtually any unionised public sector group powerful enough to hold the country to ransom, for the sake of temporary ‘industrial peace’. (Rest assured, this peace will only be temporary, and they’ll soon be back for more. The BMA have indeed already stated if they don’t get more super-inflationary rises, there will be ‘consequences’ i.e. more strikes).

 Rather than expecting the hard-pressed taxpayer to fund everything (and, remember, it is ultimately our money the government is playing fast and loose with), my suggestion would be to introduce a scheme whereby anyone awarded a pay increase above the current rate of inflation by this government would be invited to pay 0.5% of their salary into a ‘National Benefits Fund’. This would recognise that they would be receiving more than was required to compensate for price rises, and therefore should give something back to society in order to support its poorest. A 'Robin Hood' payment in all but name.

Contributions to the fund would be entirely voluntary, and to provide an incentive, would be taken from gross pre-tax salary, with tax relief available at the contributor’s marginal rate, thus ensuring that the treasury paid its fair share. For a worker earning an average salary of £40,000 p.a., the gross payment would amount to £200, but would cost the worker only £160. For a train driver or doctor on £100,000, the cost would be proportionally higher at £500, but further reduced to as little as £300 after tax relief at 40%. "..Let those with the broadest shoulders contribute the most.." as the 'man himself' has said many times....

Not a lot, surely, to ask from a group of workers who have just had a double figure pay-rise to bring their pay up in some cases almost to the 45% tax threshold. If everyone coughed up, however, it could raise significant amounts and prevent further benefit cuts.

To ensure the new benefits fund was properly ring-fenced, and only used to augment the benefits budget, it would need to be administered independently by trustees in the same way as are our private pension funds.

 I admit this is a slightly unconventional way of funding government shortfalls, but we do need to be inventive here if we are to stave off even worse injustices for our benefit recipients this autumn and winter.

 This donation scheme  would provide a reasonable way for the better off members of society to contribute a small amount of their wealth to the poorest. It would also provide much-needed extra headroom for the Treasury without incurring yet more electorally damaging wrath in large sectors of the electorate. In time, it could be formalised as an official ‘worker levy’ if there was sufficient support.

 We should also remember here that workers generally are set to benefit from a raft of new measures designed to improve their conditions of employment from Day 1, so it would be reasonable for society as a whole to expect some degree of largesse from them as the privileged beneficiaries of a new and more generous regime of both payment and working conditions.

The initial voluntary nature of the scheme would also provide a useful social experiment, and should tell us whether we have in fact already graduated to a more caring ‘We’re all in it together’ approach to our fellow man, or whether it’s just business as usual i.e. “…The strongest take the prize, and the Devil takes the hindmost….”

The alternative, which will I suspect be what emerges in the Autumn statement, would be a substantial hike in Employer NI contributions and much less favourable tax reliefs on pension contributions. The latter will hit the worker in the pocket directly by raising their personal tax take; additional employer NI, which is less likely, would be more insidious and far-reaching, since it has already caused more reluctance  on the part of employers to take on new staff - with a consequent rise in unemployment since April.

 Needless to say, pensioners, who have already paid their £200 as a compulsory donation to the exchequer via the withdrawal of their winter fuel payment, should not be expected to contribute further.

 I rest my case….

First published 7.10.24

Revised 27.6.25