Business Maverick: UK’s Labour Party U-turns on plans for tax-free pension limit

Labour had previously promised to reverse Chancellor Jeremy Hunt’s decision to abolish the lifetime allowance in last year’s March budget, with his opposite number Rachel Reeves declaring it “the wrong priority, at the wrong time for the wrong people.”

She’s now decided to keep the policy, which costs about £850-million a year, to avoid creating uncertainty for savers, according to a person with knowledge of the Labour manifesto who wanted to remain anonymous because it’s not been released. The information was first published by the Financial Times.

The reversal is further proof of Labour’s determination to play it safe before the 4 July election as the party leads the ruling Conservatives in opinion polls by about 20 points. The gap may widen after Prime Minister Rishi Sunak left last week’s 80th anniversary of D-Day celebrations early, a calamitous error for which he’s had to apologise repeatedly, and as Reform UK splinters the right-wing Tory vote.

Labour is expected to launch its manifesto on Thursday but has signalled it’s unlikely to contain any big surprises. The party has pledged not to raise income taxes, national insurance contributions or VAT but faces questions about public services as several departments face steep cuts.

On a trip to Essex, Labour leader Keir Starmer refused to rule out spending cuts but said the UK will “not return to austerity” because the party will “grow our economy”. Paul Johnson, director of the Institute for Fiscal Studies think tank, told Sky TV the parties “don’t really want to talk about the scale of the challenges facing them” and that he wished “they would stop ruling out” tax increases.

Labour has unveiled plans to create 3,300 new nurseries in existing primary schools to provide an extra 100,000 places, a 6% increase, to help parents with small children. Converting schools would cost £135-million, Labour estimated. Free breakfast clubs will also save parents more than £400 a year. Bridget Phillipson, the shadow education secretary, said the scheme would be funded by “clamping down on tax dodgers”.

Labour intends to raise about £5-billion in tax from VAT on private schools and taxes on non-doms and private equity. Emily Thornberry, a Labour front bencher, conceded to GB News that the policy may lead to some state schools being temporarily overwhelmed. “If we have to, in the short term, have larger classes, we have larger classes,” she said.

The Conservatives are expected to launch their manifesto on Tuesday. They’ve already committed £1.3-billion to child benefit, £2.4-billion for the state pension and £2.5-billion for National Service plans — paid for by raising £6-billion from tax avoidance and re-prioritising existing spending.

Over the weekend, the party promised to find another £12-billion of savings from the welfare bill, which potentially gives it room for cuts to personal, property or inheritance taxes. On Sunday, Sunak promised to recruit 8,000 more neighborhood police officers and pay for it by increasing visa fees by 25% and making overseas students pay a higher level of immigration health surcharge.

The Liberal Democrats launch their manifesto on Monday and the Green Party on Wednesday. Nigel Farage, leader of the Reform party which was running third in recent polls, will hold a press conference on Monday when he is expected to set out his plans.

Farage was criticised at the weekend for saying Sunak’s decision to leave the D-Day anniversary celebrations early proved he didn’t understand “our culture”, which appeared to be a reference to his Indian origins.

Liam Fox, a former Tory defence secretary, called Farage’s language “dangerous”. He told Sky News: “It brings an element into our politics which we should not have in British politics. I think he owes the Prime Minister and the country an apology.”