The 50p tax isn't going to greatly enrich the treasury - but private pensions will

Ed Balls's 50p tax is nothing but theatrical politics - pay close attention to the Lifetime Allowance, the cap on pension funds, which has already been lowered and most likely will be again.

“It’s still £98.13 no matter if you have just installed a self-retracting awning sir.”

“But look, look at this picture – four bedrooms, two bathrooms, a recently extended kitchen and planning permission for a loft conversion.”

“It is very nice – would you please take your estate agent's valuation out of my face - but it’s still £98.13 for the groceries, or should I call my Supervisor?”

This is a familiar scene for me and my chosen check-out lady at my local supermarket in Wandsworth. She simply refuses to accept that my house, independently verified by an estate agent, is exchangeable for any amount of goods and services at her retail outlet. No matter how wealthy I tell her I am, she nearly always expects something that looks like ready cash. There is just no pleasing some people.

The distinction between wealth and money should be obvious. Still, it doesn’t stop some people trying to mix the two things up. Ed Ball’s announcement that a Labour administration would reintroduce the 50p tax band has deflected us from the wealth/money problem in a rather pitiful attempt to launch some sort of class war between the haves and the have nots. You can understand the shadow chancellor’s motivation: it is a mathematical certainty that the have nots are always going to be in the majority. The haves wouldn’t be your natural voting group. Besides, they are probably too busy whooping it up in Davos to notice anything you say.

The problem with this kind of theatrics is that although, in the short term, it will have the gallery punching the air in support – a recent YouGov poll shows that 61 per cent of people surveyed support the 50p income tax rate - the passage of time has a terrible way of reclassifying who is defined as wealthy and who is described as poor. For instance, this April a new and little understood change in pensions legislation will come into force, which is subtle but something of a time bomb if you think you aren’t with the haves. Something called a Lifetime Allowance (LTA) is being applied to everyone: the amount that you can have in a pension without penalty is being capped at £1,250,000 – if you have anything in a pension above this limit, when you retire, you will be taxed at up to 55 per cent on the excess.

Now I am sure there are many of you sitting there thinking “Good – make the bankers pay” (it’s always bankers in some people’s minds), while you are also probably thinking that £1,250,000 as a pension fund is outside anything imaginable for most people. And it is – currently.

Estimates I have seen show that about 30,000 people will be captured by it immediately, but that’s still only enough to fill Fulham Football Club’s ground to overflowing. Even with the current limit, about 360,000 people are expected to be captured by the time they retire.

HMRC have a way of calculating what your pension pot equivalent is – they merely multiply your expected pension income by 20. So let’s imagine that you expect to have total pension rights which pay something close to the national average of about £15,000. Well, that would give you a current pension fund size of £300,000 according to HMRC. It’s a big number, but nowhere near the one and a quarter million mark. Now let’s also imagine that we actually start to see pension income rising in line with inflation over the next ten years (as the baby boomers retire). In that case your pension fund will be worth the equivalent of over £400,000. This doesn’t allow for the growth of the underlying investment, so that is a lower limit – it wouldn’t be difficult to show how that number quickly becomes more than £500,000 if you allow for any rise in the value of the underlying investments. If you are lucky enough to have a pension income greater than that and say approaching the present average income then your pension fund could easily look like £900,000, putting you within spitting distance of the current LTA.

History tells us that things like the Lifetime Allowance start off in one place and end up in another – it has already come down from £1,800,000 to £1,250,000. I suspect that, as time progresses and the pensions problem moves from a distant rumble to a deafening roar, that the LTA number will fall to capture a lot more people than the capacity of Craven Cottage. In fact, one day, I doubt you’d be able to get them all in to the total capacity of the Premier League of a Saturday. In other words, a lot of people are about to be reclassified as Haves, and without knowing it, they will have become The New Wealthy Poor – those who have no money but are assessed to be wealthy and to add insult to injury may even have a large tax liability on retirement.

Let’s face it, the money for our pension promises and the care of the elderly is going to have to come from somewhere (we can’t just dump it all on the next generation) and, as we have seen, general taxation and silly gimmicks like Balls's 50p higher tax rates do not transform our public finances no matter what the opinion polls show. The one area that is ripe for raiding is the private wealth of the general public (not just the wealthy elite) and the reduction of the Lifetime Allowance is just the opening salvo in a long and stealthy war to get at it.

Ed Balls speaking to the Confederation of British Industry. Photograph: Getty Images.

Head of Fixed Income and Macro, Old Mutual Global Investors

Photo: Getty Images
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I'm far from convinced by Cameron's plans for Syria

The Prime Minister has a plan for when the bombs drop. But what about after?

In the House of Commons today, the Prime Minister set out a powerful case for Britain to join air strikes against Isil in Syria.  Isil, he argued, poses a direct threat to Britain and its people, and Britain should not be in the business of “outsourcing our security to our allies”. And while he conceded that further airstrikes alone would not be sufficient to beat Isil, he made the case for an “Isil first” strategy – attacking Isil now, while continuing to do what we can diplomatically to help secure a lasting settlement for Syria in which Assad (eventually) plays no part.

I agreed with much of David Cameron’s analysis. And no-one should doubt either the murderous barbarism of Isil in the region, or the barbarism they foment and inspire in others across the world.  But at the end of his lengthy Q&A session with MPs, I remained unconvinced that UK involvement in airstrikes in Syria was the right option. Because the case for action has to be a case for action that has a chance of succeeding.  And David Cameron’s case contained neither a plan for winning the war, nor a plan for winning the peace.

The Prime Minister, along with military experts and analysts across the world, concedes that air strikes alone will not defeat Isil, and that (as in Iraq) ground forces are essential if we want to rid Syria of Isil. But what is the plan to assemble these ground forces so necessary for a successful mission?  David Cameron’s answer today was more a hope than a plan. He referred to “70,000 Syrian opposition fighters - principally the Free Syrian Army (FSA) – with whom we can co-ordinate attacks on Isil”.

But it is an illusion to think that these fighters can provide the ground forces needed to complement aerial bombardment of Isil.  Many commentators have begun to doubt whether the FSA continues to exist as a coherent operational entity over the past few months. Coralling the myriad rebel groups into a disciplined force capable of fighting and occupying Isil territory is a heroic ambition, not a plan. And previous efforts to mobilize the rebels against Isil have been utter failures. Last month the Americans abandoned a $500m programme to train and turn 5,400 rebel fighters into a disciplined force to fight Isil. They succeeded in training just 60 fighters. And there have been incidents of American-trained fighters giving some of their US-provided equipment to the Nusra Front, an affiliate of Al Qaeda.

Why has it proven so hard to co-opt rebel forces in the fight against Isil? Because most of the various rebel groups are fighting a war against Assad, not against Isil.  Syria’s civil war is gruesome and complex, but it is fundamentally a Civil War between Assad’s forces and a variety of opponents of Assad’s regime. It would be a mistake for Britain to base a case for military action against Isil on the hope that thousands of disparate rebel forces can be persuaded to change their enemy – especially when the evidence so far is that they won’t.

This is a plan for military action that, at present, looks highly unlikely to succeed.  But what of the plan for peace? David Cameron today argued for the separation of the immediate task at hand - to strike against Isil in Syria – from the longer-term ambition of achieving a settlement in Syria and removing Assad.  But for Isil to be beaten, the two cannot be separated. Because it is only by making progress in developing a credible and internationally-backed plan for a post-Assad Syria that we will persuade Syrian Sunnis that fighting Isil will not end up helping Assad win the Civil War.  If we want not only to rely on rebel Sunnis to provide ground troops against Isil, but also provide stable governance in Isil-occupied areas when the bombing stops, progress on a settlement to Syria’s Civil War is more not less urgent.  Without it, the reluctance of Syrian Sunnis to think that our fight is their fight will undermine the chances of military efforts to beat Isil and bring basic order to the regions they control. 

This points us towards doubling down on the progress that has already been made in Vienna: working with the USA, France, Syria’s neighbours and the Gulf states, as well as Russia and Iran. We need not just a combined approach to ending the conflict, but the prospect of a post-war Syria that offers a place for those whose cooperation we seek to defeat Isil. No doubt this will strike some as insufficient in the face of the horrors perpetrated by Isil. But I fear that if we want not just to take action against Isil but to defeat them and prevent their return, it offers a better chance of succeeding than David Cameron’s proposal today. 

Stewart Wood is a former Shadow Cabinet minister and adviser to Ed Miliband. He tweets as @StewartWood.