Rachel Reeves represents Labour’s short-termism at its worst

When Rachel Reeves became Chancellor, she made a lot of promises about improving the long-term prospects of the British economy. She was meant to be ‘fixing the foundations’ and ‘unlocking investment’ to boost growth. And yet as figures emerge showing almost three million workers will be hit by her tax raid on pensions, it turns out that the very opposite is true. Reeves has come to represent short-termism at its worst – and will make the task of her successors far harder. 

In her last Budget, Reeves capped the amount that employees could put into ‘salary sacrifice’ schemes. Previously, people could stash money into their pension and therefore pay less National Insurance (NI) upfront. Reeves decided that was a bad thing and limited the amount that could be exempt from NI to £2,000 a year, which will raise an estimated £4 billion a year in extra tax. 

The trouble is, it will also mean people save less for their pension. New figures from HMRC estimate that 2.9 million people will reduce their pension contributions after the raid. It won’t just be what Andy Burnham would probably call ‘the rich’; a quarter of them will be basic-rate taxpayers. The result? The overall level of pension savings will be significantly reduced. 

There will be two big problems with that. To start with, it means that even more people will be reliant on the state pension in their old age. At a time when the cost of the ‘triple lock’ on state pensions is already scarily high, and when an aging population will make the cost ever harder to afford, it seems an extraordinary time for the Chancellor to actively make it harder for people to save for themselves.

It will also mean there is a lower rate of overall saving, and that will mean there is less capital available for businesses to invest in the economy. Reeves keeps talking about how she wants to find ways of ‘directing’ pension fund money into the British economy. But the way she is taxing it, very soon there won’t be much less to ‘unlock’ anyway. 

It is hard to see how anyone can think less saving and less investment are what the country needs right now. Sure, Reeves will collect a little more money from the pension raid this year and next. She will be able to keep on paying the bloated welfare bill a bit longer and keep up with the soaring interest bill on the national debt. But she is undermining the foundations of the economy – and that is far away from what she promised.