15 October 2025

Tax the old

Britain cannot afford to bribe well-off pensioners any longer. Rachel Reeves must invest in the young

Since the launch of the iPhone in 2007 Britain has had seven prime ministers. That’s the same number as for the 44 years before the smartphone, going back to Alec Douglas-Home in the early 1960s. I’m not quite saying that Apple destroys Western governments. But it’s one way of noting modern turbulence: the screaming news vortex, and the relentless character assassination that defines our politics, crowding out time for perspective and deliberation.

Inside the Starmer machine there is a mood of gallows humour and hunkering down. Opinion polls are cheaper and easier than ever for media companies to commission, which means, as one Downing Street insider put it to me, “We are not only unpopular but every second day, we are reminded yet again about exactly how unpopular we are.” They know everybody hates them, but they know that sooner or later, everybody hates everybody else as well. Resilience is all.

There has been a lot of recent briefing, including against Starmer’s chief of staff, Morgan McSweeney, some of whose key supporters have left Downing Street. The soft left of Labour would love to see him out, in order to shift Starmer towards them. There is no sign of McSweeney quitting. But some of those who have been spun out of the No 10 operation recently have left partly from sheer exhaustion and disorientation.

Can you blame them? The challenges of our times are far bigger than those faced by their equivalents two decades ago. Economic insecurity and anxiety across Western democracies, which has been accelerated by technology, has produced an atmosphere of almost constant crisis. And in each of these countries, the political class confronts a long-term demographic trend. Western Europe is greying. Birth rates are falling. The median age is rising, as is the number of pensioners. Working-age populations are projected to decline in 22 out of 27 EU countries by 2050. Britain, despite an enormous influx of migrants in the first two decades of this century, won’t be far behind. The welfare costs will be staggering.

Ahead of the toughest Budget for years, these structural issues don’t make decision-taking easier. The question of how to frame this Budget so that it tells the wider story around the measures taken must be answered in the full knowledge of the ferocious attacks to come from right and left. It is unlikely that any but the simplest message will stick.

After a vigorous internal debate about whether to raise income taxes and take the big political hit, it seems likely that Rachel Reeves will just about be able to patch over the £30bn or so gap in the finances with a range of smaller “sin taxes”, such as on gambling, banking taxes and fiscal drag. If so, it will be messy and ugly, but not fatal for her. Now that there is no second Office for Budget Responsibility (OBR) assessment in the spring, the markets will probably wait to see whether she can manage the spending, growth and tax conundrum into next year.

Simple messages come easier to the opposition. Nigel Farage pledges to maintain the triple lock and restore winter fuel payments for pensioners, while abolishing the two-child benefit cap and nationalising strategic industries. Try to make that add up. Ed Davey’s Liberal Democrats appear to believe that Britain can survive economically without much of a partnership with the US – a fantasy. Under Zack Polanski, the Green Party is committed to abolishing landlords and finding £200bn over the course of the next parliament to “shift to a green economy”. Reeves’s opponents clearly do not have the OBR or the bond markets breathing down their necks.

Reeves can find a clear message, though. Labour needs to frame its economic and Budget thinking around two big, simple ideas: fairness and necessity. That means, before anything else, spending less money on interest payments to the bond markets – almost a third of UK government debt is held by foreign owners such as the big US asset managers. Unless we want to send more and more of our tax money that way, we have to persuade the markets that the state has got a grip on spending. This takes us, as ever, to the welfare budget, which is indeed ballooning. And, reader, you know where this argument is going next.

For the Tories, this means taking a hard look at the rising share of the health benefits bill taken by younger people – what Kemi Badenoch described in her Manchester conference speech as money for less severe mental health conditions such as “anxiety or mild depression”. These, she rightly said, “cannot be treated as a reason for a lifetime off work”.

Labour agrees. But both know that defining “mild depression” is a nuanced and intimate judgement. Politicians of all sides can see, in their mind’s eye, headlines about people killing themselves when benefits are suddenly refused. Everyone understands how individual tragedies become national policy crises. We are back to the frantic, instant-verdict world of political communication in the age of social media. Nobody will spell out the cuts they privately think are essential.

But this is by no means the central dishonesty. Badenoch made a great deal in her conference speech about her honesty in confronting fundamental problems and Labour’s weakness. She promised “radical reform of our welfare system. We will return to its founding principle: that support goes only to those that really need it. This should be common sense, but only the Conservatives understand this.”

Did Badenoch then turn to the obvious? She was not brave or honest enough to question in front of her relatively elderly and prosperous audience the £175bn of social security spending going to pensioners in this fiscal year. That’s where the greying of western Europe comes back in. You can ignore this problem. But it’s not going to go away.

We have to deal with inter-generational unfairness. We have to talk about the large numbers of well-off pensioners in Britain who frankly don’t need state support. In an aged society, the young will need as much support, if not more, than the old. The economic burden they face – of paying tax, of fuelling the housing market as first-time buyers, of being the first to be made redundant in this new age of artificial intelligence – is larger than it has ever been. Should they be paying for a triple lock on pensions, too?

Let’s think about the figures involved in the mental health support that so angered Badenoch. The Centre for Mental Health, a campaigning charity, estimates that in 2022 more than £12bn was paid in benefits to people with mental health problems in England. That’s £163bn less than to pensioners, who account for nearly 58 per cent of the welfare budget. In the 1950s, pensions stood at around 2 per cent of GDP. They now swallow up more than 8 per cent because we live longer. But thanks to the disproportionate political power older people wield by voting, they have, since 2010, enjoyed the triple lock guarantee, which promises basic state pensions to rise by whichever is the highest – CPI inflation, average earnings growth or 2.5 per cent per year.

If a key reason for the bond market pricing of Britain is that, in this parliament, welfare is expected to grow by around £60bn, it’s important to remember that pensioners will account for more than half of that. If you are seriously worried about British debt costs, then you really have to look at how much we are spending on pensions.

Yes, the country is full of poor pensioners, and the full state pension of £230 a week is hardly generous. Ministers are still stung by the experience of removing the winter fuel allowance. But is the triple lock affordable? Because of it, the new state pension is due to rise by 4.7 per cent (equating to more than £500) in April. One senior figure tells me that on this, British politics is suffering from the prisoner’s dilemma – everyone knows something must be done on pensioners, but nobody wants to move first. There is a further problem: pensions are about the last remnant of the contributory principle left in the welfare state. “But I paid in for years. It’s my money and you can’t take it away now,” would be a powerful rebuttal to any attempt to remove pensions from people with either generous private pension provision or, simply, enough wealth.

Yet we are in a deep hole as a country. It wasn’t dug by this Labour government but during the Tory years, and in some respects by the government of both parties before then – hence the power of Farage’s “uni-party” jibe. The options before us are not easy but if we are going to use fairness and necessity as watchwords, I can’t see how pensions can stay outside the equation.

A lot of taxpayers’ money is going, in a great circle, to relatively well-off, securely housed individuals and couples. It may well be, as ministers insist, that only one in ten pensioners is properly wealthy. But the British state can’t afford to subsidise the prosperous endlessly. Looking again at uprating is the obvious answer. But if, instead, this turns out to be a Budget that taxes better-off pensioners, raises capital gains tax and increases taxes on property, then this should all be explicitly championed as part of a tilt towards younger voters – the ones so cut out of modern prosperity that their disillusion threatens the whole system. Older and more fortunate Britons (and I am one of them) need to work longer and we need to take less from the state.

Nobody inside Westminster wants to talk about this. At the election, Keir Starmer committed himself to the triple lock for the duration of this parliament – as unwise a promise as those he made on income tax and VAT. The Conservatives, the so-called party of fiscal responsibility, went even further, promising the “triple lock plus” under which pensioners would get higher tax-free personal allowances, to stop them being dragged into income tax because of state pension increases.

Fairness and necessity. If the bond markets represent necessity, then fairness means talking about inter-generational equity and the need to squeeze the wealthier and older. This is at the heart of a sickness inside our body politic, with far too many people having far too little stake in the system.

In the turbulent world of instant-attack politics, we need a Labour government that knows what it stands for, speaks clearly and, when it has picked a fight, doesn’t stop. Controlling budgets by confronting wealthy, vocal pensioners would be a good place to start.

[Further reading: Has Netanyahu won the war?]