Burnham told to consider means-testing state pension to fill defence blackhole

Andy Burnham is being advised to means test his state pension as a way of filling the £4.7bn black hole in the defense budget left to him by Sir Keir Starmer.

The proposal came from tax expert Dan Neidle, a Labor member on the list of 37 options. tax policy published on the website Finding the money to pay for the unfunded part of Ser Keir’s Defense Improvement Plan.

He claimed that preventing the richest from receiving state pensions could save £1bn a year. But this would break the link between the state pension, a universal benefit funded by National Insurance that David Lloyd-George founded in 1908.

Mr Burnham denied that Labor would follow through on a promise in its 2024 manifesto not to increase income tax, VAT or personal contributions to National Insurance, which in theory funds the state pension.

He discussed changing business rates to target large online retailers like Amazon that rely on large warehouses.

But he also recommitted to the triple lock-in of the state pension, which rises by 2.5 percent each year, or at the rate of peak inflation; This increases the burden of the bill.

But it needs to find at least £4.7 billion to fund the black hole in the defense package and may need to find a further £13 billion if it is to meet the amount military chiefs claim is needed to prepare Britain for an increasingly dangerous world.

Ranking the state pension as the 37th means-tested option, Mr Neidle said: “The state pension pays around £12,500 a year. “It’s easy to think this is an irrelevant amount for wealthy pensioners and we should be means-testing the pension to prevent them from benefiting.

“Given that the government spends over £150bn on pensions each year, simply preventing even the richest 1 per cent from accessing pensions would raise over £1bn. This looks like a slam dunk.”

However, in his warning about the proposal, he admitted that it would create problems.

He said: “The £12,500 annual pension updated with the ‘triple lock’ is actually a very valuable asset.

“Buying such an asset would cost the average 66-year-old more than £250,000. A family in the ‘fair’ top 1 per cent has an average asset of £1.9 million per adult. So abolishing pensions would mean effectively expropriating more than 10 per cent of their wealth. This feels unfair. I doubt any chancellor would do this.”

Instead, Mr Neidle’s key proposal is to continue the fiscal drag on issues such as freezing income tax thresholds so that more people are included in the 20p basic tax, as well as the higher rates of 40p and 45p.

“Inflation and earnings growth mean we are all earning more in cash, but not in real terms – but tax thresholds have remained the same for years. The Johnson and then Sunak governments have raised huge sums through fiscal drift – over £29bn by 2027/28. This has had only a limited impact on average earners, but represents a significant tax increase for high earners. Rachel Reeves has extended the freeze until April 2031. It looks like another extension from the Bay Burnham raised around £5bn in 2031/32 and more in subsequent years.”

Mr Neidle also suggested that a proposal to increase capital gains tax, recently published by Louise Haigh, a key aide to Mr Burnham, could bring in £6bn.

He noted: “It is clear from the tables above that a capital gains tax is the biggest way to raise tax without breaking pre-election promises.”

But he warned: “But this comes with a major hurdle. HMRC figures suggest a simple interest rate increase will lose income rather than increase it.”

Other proposals include an exit tax on wealthy people leaving the UK, a capital gains tax on top of inheritance tax when people die, an increase in inheritance tax and forcing law firms to pay employer national insurance. They are currently exempt because lawyers have partner status, not employee status.

He also wants Mr Burnham to try to eliminate the stamp duty loophole on business property, introduce a tax on large gifts and force the Bank of England to stop paying interest on its reserves.