Andy Burnham, the newly elected Labour MP for Makerfield and a frontrunner to succeed Sir Keir Starmer, faces a significant financial challenge. The recent defence investment plan announced by Starmer includes an additional £15 billion in spending, of which £4.7 billion remains unfunded. This gap places Burnham under pressure to identify new revenue sources or cuts.
Tax Policy Associates’ analyst Dan Neidle highlights the dilemma: Burnham is unlikely to reduce spending drastically or boost borrowing given current economic conditions and costly gilt rates. Instead, Neidle suggests increasing taxes may be the most feasible option. Burnham himself admitted there is “some room for movement on tax” despite Labour’s previous manifesto commitments.
Among 37 potential tax strategies, Neidle draws attention to the possibility of means-testing the state pension to save over £1 billion. The current state pension pays around £12,500 annually, which would appear to be an easy target for trimming benefits to wealthier retirees.
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However, Neidle warns that means-testing pensions is more complicated and potentially unfair. With government pension spending exceeding £150 billion each year, restricting pensions for the top 1% of wealthiest retirees could save substantial funds. Yet, the £12,500 yearly pension, protected by the “triple lock” policy, represents a valuable asset worth more than £250,000 to a 66-year-old. For those in the wealthiest 1%, who average £1.9 million in assets per adult, cutting their pension equates to seizing over 10% of their wealth.
Such a move, Neidle argues, would be unjust and politically untenable. It is doubtful any Chancellor would pursue this approach, given the significant asset value the pension represents to retirees.