Election 2024: Sir Steve Webb reviews the party manifestos
Former pensions minister Sir Steve Webb has welcomed Labour’s decision not to mention the lifetime allowance in its general election manifesto – but warned that it does not mean the policy is completely off the table.
Speaking to Pensions Expert, Sir Steve – now a partner at LCP – said it was likely that Labour’s links to public sector unions played a role in the party retreating from its plan to reintroduce the lifetime allowance after the Conservative Party scrapped it.
NHS doctors and other senior public servants have been hit by tax bills in recent years as the lifetime allowance has fallen from £1.8m in the 2011-12 tax year to just over £1m since 2020-21.
Despite pledging to reverse the government’s abolition of the limit, last week’s Labour Party manifesto made no mention of this plan, which had met with strong opposition in the pensions industry due to its complexity.
“I think Labour has taken the view, rightly, that [the lifetime allowance] doesn’t raise any money,” Sir Steve said. “The government tried to abolish it in a year and failed – it’s still a mess and hasn’t been sorted out.
“Reintroducing it will take a year or more, so realistically you’re looking at April 2026. Do you need to address that in a 2024 election manifesto, something that may or may not generate revenue in 2026?”
Before 6 April 2023, any pension savings above the allowance were subject to a tax charge. Since 6 April 2024, the lifetime allowance has been scrapped completely – but HM Revenue & Customs is still struggling to update its rules.
However, Sir Steve said Labour’s decision not to include the lifetime allowance in its manifesto did not mean the issue was resolved.
“The absence of a commitment is not a commitment to absence,” he said. “Just because they didn’t say ‘we will do it’, doesn’t mean to say they won’t.”
The state pension – tax or no tax?
Research by LCP, published today (21 June), indicates that approximately 2.5 million people already in receipt of a state pension “are over the existing income tax personal allowance purely on the basis of their state pension”.
This research calls into question the Conservative Party’s core manifesto pledge that pensioners would “never” have to pay income tax on their state pension. The party wants to link the new state pension to the personal income tax allowance so that this income does not become taxable.
However, even if a “triple lock plus” policy was introduced, many people in receipt of the old basic state pension and SERPS would likely still pay income tax on these payments, LCP said.
Sir Steve said: “People fixate on the new state pension and the standard rate, [which] is going to go up with the triple lock. At some point it will exceed the tax-free allowance and then a bit of your pension will become taxable.
“What that ignores is that most pensioners in Britain are not on the new state pension – they’re on the old state pension system. Under the old system, you’ve got a basic pension and a SERPS pension, which can be between zero or £200, it varies enormously.”
Read the full story: Data casts doubt on Conservatives’ state pension pledge
‘Pot for life’ put back in the cupboard
The former pensions minister also welcomed the Conservative Party’s decision not to include its controversial ‘lifetime provider’ or ‘pot for life’ proposal in its manifesto.
He said: “One thing I was quite pleased about was that the Conservative manifesto didn’t have the lifetime provider proposal in it. A bunch of us were, for different reasons, saying this was a terrible idea.
“I was quite encouraged that... the power of reasoned argument appears to have had some impact.
“Sometimes policies are just persevered with for purely ideological reasons. There is an ideological argument [for the lifetime provider] that it’s the consumer’s choice where the money goes. I understand that, but because of all the practical issues the policy would raise, I was quite pleased that it didn’t survive.”
The missing auto-enrolment policies
In the wake of last week’s manifesto launches, several industry commentators lamented the absence of any mention of auto-enrolment contribution increases.
However, Sir Steve highlighted that the cost-of-living crisis meant that it would have been politically difficult for any party to campaign with a policy of taking more money out of people’s pay packets to put towards a pension – even though it would be for the right reasons.
He added that financing any increase was also an issue: “The Treasury doesn’t want the tax relief cost of higher contributions. That has always been a barrier.
“If Rachel Reeves [Labour shadow chancellor before 30 May] wanted to spend a few hundred million pounds on something, would it be tax relief for auto-enrolment, which nobody actively votes for, or would it go towards the NHS, for example? You have to find the money for that tax relief from somewhere.
“But again, none of this means these things will not happen in the new parliament.”
The big question
Labour is expected to win a comfortable majority on 4 July. According to BBC data, 41% of voters intend to support Labour in the election, with 21% supporting the Conservatives.
Some polls have estimated that Labour’s lead is even bigger, leading some to warn of a “supermajority” for Sir Kier Starmer’s party – although the Institute for Government has played down this risk.
Asked how he thought the election would play out, Sir Steve said: “The big unknown is Reform UK. In 1983, for example, the centre-left fragmented with the Labour Party and the SDP-Liberal alliance. If you fragment one side of the equation, the other side romps home. Margaret Thatcher won a majority of 144 in 1983 because the left fragmented.
“It’s not that the country isn’t more or less evenly split between centre left and centre right, which I think it is, but if you split the right’s vote by two in every constituency then the centre-left wins almost everywhere. If the Reform UK vote keeps rising, the effect could be dramatic.”
The BBC’s data has Reform UK, led by Nigel Farage, attracting 16% of the vote on 4 July, but some polls have put the party ahead of the Conservatives.
Further reading
Pension policy roundup: What made the manifestos? (17 June 2024)
Trustees urge focus on pension adequacy after election (18 June 2024)