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

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Theresa May defies the right by maintaining 0.7% aid pledge

The Prime Minister offers rare continuity with David Cameron but vows to re-examine how the money is spent. 

From the moment Theresa May became Prime Minister, there was speculation that she would abandon the UK's 0.7 per cent aid pledge. She appointed Priti Patel, a previous opponent of the target, as International Development Secretary and repeatedly refused to extend the commitment beyond this parliament. When an early general election was called, the assumption was that 0.7 per cent would not make the manifesto.

But at a campaign event in her Maidenhead constituency, May announced that it would. "Let’s be clear – the 0.7 per cent commitment remains, and will remain," she said in response to a question from the Daily Telegraph's Kate McCann. But she added: "What we need to do, though, is to look at how that money will be spent, and make sure that we are able to spend that money in the most effective way." May has left open the possibility that the UK could abandon the OECD definition of aid and potentially reclassify defence spending for this purpose.

Yet by maintaining the 0.7 per cent pledge, May has faced down her party's right and title such as the Sun and the Daily Mail. On grammar schools, climate change and Brexit, Tory MPs have cheered the Prime Minister's stances but she has now upheld a key component of David Cameron's legacy. George Osborne was one of the first to praise May's decision, tweeting: "Recommitment to 0.7% aid target very welcome. Morally right, strengthens UK influence & was key to creating modern compassionate Conservatives".

A Conservative aide told me that the announcement reflected May's personal commitment to international development, pointing to her recent speech to International Development staff. 

But another Cameron-era target - the state pension "triple lock" - appears less secure. Asked whether the government would continue to raise pensions every year, May pointed to the Tories' record, rather than making any future commitment. The triple lock, which ensures pensions rise in line with average earnings, CPI inflation or by 2.5 per cent (whichever is highest), has long been regarded by some Conservatives as unaffordable. 

Meanwhile, Philip Hammond has hinted that the Tories' "tax lock", which bars increases in income tax, VAT and National Insurance, could be similarly dropped. He said: "I’m a Conservative. I have no ideological desire to to raise taxes. But we need to manage the economy sensibly and sustainably. We need to get the fiscal accounts back into shape.

"It was self evidently clear that the commitments that were made in the 2015 manifesto did and do today constrain the ability to manage the economy flexibly."

May's short speech to workers at a GlaxoSmithKline factory was most notable for her emphasis that "the result is not certain" (the same message delivered by Jeremy Corbyn yesterday). As I reported on Wednesday, the Tories fear that the belief that Labour cannot win could reduce their lead as voters conclude there is no need to turn out. 

George Eaton is political editor of the New Statesman.

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