Something old, something new. Something borrowed, and something for “red wall” voters deserting the Conservatives en masse.
Like a penitent spouse trying to renew some decidedly tattered wedding vows, Jeremy Hunt this week delivered a budget dressed up as a plea for forgiveness. This government is desperate to present itself at the electoral altar next year as a virgin administration, its wild fling with Liz Truss conveniently forgotten. Something old? That would be the return of basic competence, and a government that doesn’t leave wine stains on the walls or wipe billions off the stock market by accident.
His new idea was a fresh start on welfare, scrapping the hated work capability assessment and promising more help for people to get jobs (although with even tougher sanctions if they don’t). Free childcare hours for the under-threes was the borrowed element, swiped from a Labour party that will (if it wins the next election) now have to stump up the extra money to make a wildly underfunded policy actually work, without necessarily getting the glory for it. And for hard-pressed red wall voters, there was more help with energy bills plus something vaguely Brexity-sounding about lowering duty on beer in pubs. This was a carefully calibrated budget from a Conservative party that is clearly now back in contention politically, if a long way from being back in the lead, and leaves no room for Labour complacency. But it also revealed that leopards don’t change their blind spots. Rishi Sunak’s government suffers from the same fatal weakness that Liz Truss revealed by scrapping the 45p tax rate, and that’s failing to realise how bailing out the very wealthy looks to everyone else.
The big surprise of the budget was the chancellor removing the lifetime cap on tax-free pension savings, to stop NHS consultants retiring early on the grounds that their retirement savings are now so enormous that they’re attracting crippling tax bills. (Currently, anyone lucky enough to have £1m stashed away in their pension pot – about 10 times the median pension savings for 55- to 64-year-olds – can’t stuff in any more without attracting tax penalties, which, combined with general post-pandemic exhaustion, has evidently convinced some doctors to hang up their stethoscopes). Except the beneficiaries won’t just be doctors, because apparently that would have been too complicated; so anyone earning up to £240,000 a year and lucky enough to have a big pension pot stands to benefit, suggesting an unexpected tax break for some City types, the upper reaches of the tech industry and other highly paid professionals. Not only can they now build an even bigger nest egg for their own old age, some may even be able to hand it down to their children. Pension pots are usually passed on free of inheritance tax, although in most cases the heir would pay income tax on what they draw down, and the bigger the pot the more likely the owner won’t spend it all before they die.
All this may seem perfectly reasonable if you move in circles where everyone has seven-figure retirement funds – maybe you’re a former Goldman Sachs banker married to an heiress, for example – but rather less so to a care worker wondering why nobody’s earmarked £800m a year to stop them and their colleagues leaving for better-paid jobs at Aldi. Was there really no other way of solving a pension problem specific to senior doctors without creating what the Institute for Fiscal Studies and the Resolution Foundation thinktank both argue is an inheritance tax loophole ripe for exploitation?
Inherited money is already one of the few things propping up an insane housing market in London and the south-east. By 2025, it’s estimated that about £100bn a year will be passing down from an ageing baby-boomer generation to their children in what’s been dubbed the “great wealth transfer”, comprising both legacies and so-called “lifetime gifts” handed over while the donor is still alive. By 2047, that figure could have more than trebled. For the lucky ones it will be life-changing, but it risks creating deep divides between those who are in line for inheritances and those who aren’t. The last thing Britain needs, in other words, is new ways of keeping wealth within the family.
Freezing inheritance tax thresholds, as successive chancellors including Hunt have done for more than a decade, has, in fairness, skimmed some useful extra billions off this wave of inheritance. But imagine how much more could be achieved with a radical rethink of wealth tax – perhaps with proceeds ringfenced to build houses for those who can’t borrow a deposit from the bank of Mum and Dad, which was the big idea glaringly absent from this budget.
The Conservative party’s capacity to regenerate itself should never be underestimated. Sunak’s government has identified its biggest weaknesses, is tackling them methodically, and clearly isn’t going down without a fight. But every political party has its blind spots and vested interests, and problems it knows it should solve but can’t for fear of upsetting its base. The longer a party is in power, the more these start to pile up, until eventually the country starts to feel stuck and voters conclude it’s time to let the other lot have a go at shifting the logjam. “Time for a change” is the slogan all incumbents rightly fear. Perhaps doctors aren’t the only ones heading for an early retirement.
Gaby Hinsliff is a Guardian columnist
