Miliband’s New Pensions Raid May Spark Labour Civil War

Gordon Brown and Ed Miliband

Ed Miliband’s insistence that Labour will cut university tuition fees from £9,000 to £6,000 a year may spark a civil war inside his party, insiders have claimed. The handout to students would be funded by a new raid on pension pots, prompting nurse’s leaders to speak out against the measure.

Mr Miliband has stated that the pledge to cut tuition fees is “cast iron”, and will form a “red line” in any coalition agreements that may take place after the next election. But it has been causing problems with his colleagues for four years, as shadow chancellor Ed Balls has repeatedly warned him that the £2.9 billion required to fund it would be hard to find.

With time running out, and shadow ministers unwilling to take the hit on their departments’ budgets, Balls and Miliband have drawn up a new plan to raid pensions, perhaps in homage to their former employer, Gordon Brown, who raided the pensions pot when he first came to power in 1997.

Labour’s scheme will see tax relief for pensioners with incomes more than £150,000 cut from 45p to 20p, while the tax-free lifetime allowance on a pension would drop from £1.25million to £1million, the Daily Mail has reported.

The plan has been slammed as “financially illiterate” by critics, while a Huw Evans, a former aide to Tony Blair warned that it would be a mistake. “The pensions and long-term savings industry supports reform of tax relief but this is not the way to do it,” he said.

“We need a focus on reforming the pension tax relief system as a whole to make it fairer, better value and encourage saving from middle earners, rather than piecemeal cutting back the existing system to pay for other policy objectives.”

There are fears that the plans could also impact lower earners, with someone retiring on a pension pot worth just £26,000 a year taking a hit. Nurses, firefighters and teachers might also be affected.

Dr Peter Carter, of the Royal College of Nursing, said: “Helping students financially is important. However, this must not be at the expense of hard-working nurses. We will examine these proposals to ensure their pensions will not be affected.”

His comments were immediately jumped on by Health Secretary Jeremy Hunt, who wrote to his opposition Andy Burnham to say “I wanted to ensure you are fully aware of the impact of this announcement on NHS staff. For example, if a nurse team leader earning around £35,500, who is in a final salary, defined benefit pension scheme, achieves the promotion to matron they have been working 25 years to achieve, they will face a tax charge of £5,000 on their pension pot. This is what happens when policies are not properly thought through.”

But Mr Miliband insisted that the pensions raid would only affect the very rich, saying “The scourge of debt from tuition fees is not only holding back our young people, it is a burden on our country.”

Last April figures published by the Office for Budget Responsibility revealed the full extent of Gordon Brown’s pension raid, conducted in 1997 when Mr Miliband was working as his special advisor. Between 1997 and 2014, the pensions reform, which scrapped rate relief on pensions dividends, hauled in £118 billion for the Treasury.

The policy led to the wholesale collapse of final salary pension schemes. In 1997, 34 percent of staff in private companies, some 5 million people, were in a final salary pension scheme. By 2012 this had plummeted to 12 percent, or just 1.7 million people.

Ros Altmann, a former Downing Street pension adviser, said Labour’s move marked “the beginning of the end of the gold standard pension that British workers could rely on from their boss.”

She added: “This is money that has come out of people’s pensions. It paved the way for the end of final salary schemes because it made them so much more expensive. They were suddenly unaffordable.”


Please let us know if you're having issues with commenting.