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Times
19 hours ago
- Business
- Times
Is it time to means-test the state pension?
The new state pension is paid to those who paid enough national insurance, regardless of whether they have any other retirement income. The amount you get is guaranteed to go up in line with the highest of inflation, wages or 2.5 per cent thanks to the triple lock — a guarantee that the Office for Budget Responsibility says will cost the government £15.5 billion a year by 2029. We ask if payments should be limited to those who need them. Heidi Karjalainen from the Institute for Fiscal Studies Means-testing the state pension is often floated as a potential way to rein in public spending. The logic seems straightforward: why should state support go to already wealthy pensioners? However, the state pension is an important source of retirement income even for relatively well-off pensioners. It makes up 23 per cent of the income of the top 20 per cent of the highest earners among the recently retired, according to our research in 2023. You'd have to be really very well-off not to miss the £230.25 a week that the full state pension is now worth. Second, means-testing disincentivises saving. If your level of state pension depended on how much you had in your private pension, then each pound saved would deliver a smaller net return. This would discourage people from saving more and could deter participation in workplace pensions altogether. Making decisions about private pension savings is already complex, and means-testing the state pension would make it even more difficult. You would have to consider the effect that additional savings would have on your future state pension income. • Fixing the retirement crisis means tackling public sector pensions Automatic enrolment into workplace pensions would also be harder to justify if the state pension was means-tested, as some might see no benefit from saving in a private pension. Proponents of means-testing often point to Australia as an example of where it works. However, Australia's means-testing of the public pension is balanced by compulsory (and high) private pension contributions during working life, meaning that most retire with substantial private pensions. In the UK, where we rely on a voluntary, but strongly encouraged, private pension system, it would not work as effectively. The state pension, as it stands, provides a solid foundation for retirement incomes for most people. When considering how to control the rising costs of the system, the government should instead focus on setting the state pension age and when and how to move on from the generous triple lock increases. • Read more money advice and tips on investing from our experts Edmund Greaves, editor of the Mouthy Money podcast and former deputy editor of Moneywise magazine The state pension is unsustainable in its current form. It is the single largest cost in the Department for Work and Pensions budget, accounting for 46 per cent of all benefits spending, according to the National Audit Office. Government forecasts put the bill at £168.7 billion for the 2029-30 tax year, which represents a 141.5 per cent rise since 2010-11 or more than 7 per cent annually. When the triple lock was introduced in April 2011, it rightly sought to address the pension's modest size relative to other minimum income benchmarks, such as the national living wage. But unlike every other benefit, the state pension is not means-tested. It is based solely on national insurance contributions, regardless of overall wealth. Millions of people in retirement now get payments they simply do not need. According to the Office for National Statistics, the median net wealth of households with a head aged 65 to 74 between April 2020 and March 2022 was £502,500. These people can fund their retirement without taxpayer help. Past governments have tweaked the system by raising the pension age and making it the same for men and women, but they have avoided the central question of why the wealthier should be paid the same as those who rely on the pension to survive. Next year marks an inflection point because the full state pension will, for the first time, exceed the income tax personal allowance — the amount of income you can have tax-free. This means that some of the state pension could be taxable and those pensioners without tax-sheltering options for any additional retirement income will pay tax on it while others will be able to rearrange their finances to avoid this. It is an indefensible imbalance. Instead of endless debates over the triple lock or incremental increases in the pension age, we should start means testing. A fair approach would be to assess net worth at state pension age and direct support to those who truly need it. Relying on the tax system to claw back payments from the rich will never deliver enough savings. The state pension is a cornerstone of the UK's social contract. If the state continues to distribute it indiscriminately, funded by working-age taxpayers, that contract will erode. Those who have, laudably, built enough wealth to fund their retirement should not get state support they do not need. Means testing would protect the poorest, reduce unfairness, and put the pension budget on a sustainable footing for the future.
Daily Mail
23-07-2025
- Business
- Daily Mail
Opinion: Britain is at the mercy of bond markets
It took the British government more than three centuries to rack up debts of £1trillion. That milestone was reached in 2010, in the wake of the financial crisis. It took just ten more years for our debts to hit £2trillion. They now stand just shy of £2.9trillion – and will hit £3trillion either this fiscal year or next. So that's another trillion racked up in less than a decade. Yes, there's the impact of inflation . And the triple-whammy of the financial crisis, the Covid-19 pandemic and the energy shock after the invasion of Ukraine , all of which pushed the debt higher as the government borrowed to support households and businesses. But as the Office for Budget Responsibility warned in a recent report highlighting the parlous state of the nation's finances, successive governments have failed to take the action required to bring the debt back under control in the wake of those crises. And the government's annual borrowing bill has hovered around 5 per cent of GDP a year since the pandemic – levels only previously seen during recession or war. This is a major headache for Rachel Reeves ahead of the Budget this autumn. And that spells yet more pain for households and businesses – because however the Chancellor spins it, another round of tax rises are coming. They will be big. And they will be painful. This is because, far from being a 'beacon of stability' in an uncertain world, as Downing Street would have us believe, Britain is at the mercy of the bond markets. One only has to look back at the Liz Truss debacle to know that twitchy bond markets matter. And twitchy they are. To such an extent that UK gilt yields – a key measure of how much it costs the British government to borrow – are the highest in the G7. In fact, the UK has the third-highest borrowing costs of any advanced economy after New Zealand and Iceland. This is because international investors look at Britain – with its soaring debts and lack of political will to do anything about it – and do not like what they see. So they charge the UK government more to lend it money than almost every other similar economy in the world. To understand what that means one only has to look at the today's figures from the Office for National Statistics that show the UK paid £16.4billion of interest on the national debt in June alone. This was £8.4billion more than in the same month last year and the second highest June on record, amounting to nearly £550million a day and more than £22million an hour. So we are now in a situation where we are forecast to spend £111billion this year servicing the national debt – and just £62.2billion on defence. With the economy slowing, fears are mounting that the fiscal situation is getting worse not better. The scene is set for another punishing Budget this autumn.
Reuters
22-07-2025
- Business
- Reuters
UK borrowing climbs as inflation adds to debt bill, and Reeves' headache
LONDON, July 22 (Reuters) - Britain borrowed more than expected in June as high inflation pushed up the government's debt costs, according to data that is likely to add to speculation about the need for fresh tax increases by finance minister Rachel Reeves. Public sector net borrowing totalled 20.7 billion pounds ($27.88 billion) last month, the data showed, higher than a median forecast of 16.5 billion pounds in a Reuters poll of economists, and the second highest for June on record. The borrowing was also higher than expected by Britain's budget watchdog, the Office for Budget Responsibility, which forecast borrowing of 17.1 billion pounds in June when it published its outlook in March. That was before a strong inflation reading in April had the effect of pushing up inflation-linked government bond payments. Tuesday's data from the Office for National Statistics showed interest payable on central government debt was 16.4 billion pounds in June, the third highest since monthly records began in 1997. Reeves is expected to raise taxes in a budget statement towards the end of 2025 in order to remain on track to meet her targets for fixing the public finances. That job was made harder by the government dropping its plans to save money from the welfare bill due to stiff opposition from within Prime Minister Keir Starmer's Labour Party. Slow economic growth is also adding to Reeves' problems. "Recent U-turns on welfare and persistent growth headwinds could open a gap against fiscal targets, which could require further tax rises or spending cuts in the Autumn Budget," Dennis Tatarkov, senior economist at KPMG UK, said. Darren Jones, a deputy to Reeves at the Treasury, said the government remained committed to its fiscal rules, chief among them a promise to cover day-to-day spending with tax revenues by the end of the decade. Over the first three months of the fiscal year which began in April, Britain borrowed 57.8 billion pounds, 15% more than in the same period last year and the third-highest April-to-June deficit on record. However, the figure was in line with the three-month forecast by the Office for Budget Responsibility, offering some comfort to Reeves. The public finances have been bolstered by her increase in social security contributions paid by employers. Compulsory social contributions - mostly National Insurance Contributions - jumped by 18% in the April-to-June period to 48 billion pounds. ($1 = 0.7425 pounds)
Reuters
22-07-2025
- Business
- Reuters
UK borrowing climbs as inflation pushes up debt costs
LONDON, July 22 (Reuters) - Britain borrowed more than expected in June as high inflation added to the government's debt costs, according to official data that is likely to add to speculation about the need for fresh tax increases later this year. Public sector net borrowing totalled 20.7 billion pounds ($27.88 billion) last month, the data showed. Britain's budget watchdog, the Office for Budget Responsibility, forecast borrowing of 17.1 billion pounds in June when it published its outlook in March. That was before a strong inflation reading in April had the effect of pushing up inflation-linked government bond payments. Tuesday's data from the Office for National Statistics showed interest payable on central government debt was 16.4 billion pounds in June, the second-highest June central government interest bill since monthly records began in 1997. Finance minister Rachel Reeves is expected to raise taxes in a budget statement towards the end of 2025 in order to remain on track to meet her targets for fixing the public finances. ($1 = 0.7425 pounds)
Telegraph
10-07-2025
- Business
- Telegraph
Britain is killing itself with compassion
To lightly paraphrase Upton Sinclair, it is very difficult to get a man to understand something when his claim to your salary depends on his not understanding it. The Government's attempt to reform welfare was billed by Liz Kendall, the Work and Pensions Secretary, as 'a fairer, more compassionate system'. This is a curious description given that, from where I'm standing, these two objectives seem to work in direct opposition. Between generations, Britain's current direction is monstrously unfair. Unless we change course, by 2070 we will have burdened our children and theirs with debt stocks equal to 270pc of GDP. Small wonder that the Office for Budget Responsibility is telling the public that state finances are on an 'unsustainable' pathway, or that its chair is saying Britain 'cannot afford the array of promises that it has made to the public'. We are headed for a crunch that will see some go without to pay for benefits they themselves will not enjoy. But it is also unfair within generations. Every day, Britain's workers drag themselves out of bed to fund Motability BMWs, central London social housing, and tax-free cash transfers that the state, in its compassion, raids their wallets to provide. And every day, sour-faced Labour backbenchers – sometimes ministers – take to the airwaves to insist that they aren't really doing enough, and that taxes will need to rise to pay for more cash transfers. The fundamental incentives at play aren't hard to understand. Adjusted for inflation, a benefits system that cost around £244bn a year in 2019-20 now costs around £303bn six years on, an enviable growth of 24pc or so. The economy, meanwhile, grew about 4pc between 2019 and 2024. Unless this year is going to be an absolute blockbuster, it's hard to see how this is an affordable trend. Politically, meanwhile, it's hard to see how it's going to be unwound. Democracies seem to be prone to 'ratchet' effects; once spending rises, it creates constituencies for that spending who fiercely resist any attempts to lower it. We can treat this statement literally as well. Look across the benefits with the largest caseloads in Britain – the state pension, universal credit, various disability and sickness benefits, and housing benefit – and the scale is staggering. There are, by my count, somewhere around 19.5 million people over the age of 18 claiming various forms of welfare in England and Wales. Break this down by constituency, slicing the data to avoid counting people claiming more than one benefit twice, and those adults in receipt of these benefits would be enough to exceed 50pc of all registered voters in about 155 Westminster seats. They exceed 40pc in 447. It's not particularly surprising, in other words, that two half-hearted attempts to tinker with old-age and disability benefits ended in disastrous about-turns: even a Government with a majority as large as Sir Keir Starmer's would find it tricky to engage in the wholesale paring back of the welfare state that is desperately needed. And that's reckoning without the point that many Labour MPs simply don't want to. They see the economy as an arbitrary block of money that has somehow been dealt to those who are undeserving – bankers, lawyers, coders and so on – rather than to the pillars of society: undocumented migrants, the unemployed, unemployable and underworked, unionised workers and many of those in the public sector. It is their task to compassionately correct this error. This would be hard enough to swallow on its own terms – the state returning to its earliest incarnation as armed bandit, here utilised by a concentrated voting bloc to hand itself ever greater shares of income – but becomes intolerable when put into a wider context. While Sir Keir is refusing to rule out a wealth tax – probably the best way to devastate an economy short of bombing it – the state is beginning to fail in some of its most basic functions. The Government is musing on abolishing the right to a jury trial for a swathe of offences in order to save money, even as it releases prisoners early to avoid prisons overflowing. Other criminals will simply be offered 'out-of-court resolutions'. The Channel crisis is making a mockery of the Government's responsibility to protect the borders, and putting the interests of the British people ahead of the desire of MPs to play the role of saviour to the world. The Home Office has no idea how many people on expired work visas actually leave the country when their time is up. A similar observation could be made about a range of Government behaviours: policy made, as David Goodhart quotes former Cabinet secretary Gus O'Donnell as saying, to 'maximise global welfare not national welfare', from net zero commitments through to Starmer's Chagos surrender. It would be one thing if this compassion was funded by a state in robust fiscal health. But this year we are expected to borrow £137bn, almost 5pc of GDP. Total government investment in infrastructure over 2024, meanwhile, ran to about £28.9bn, and the current budget deficit over the last fiscal year was roughly £75bn. We are not borrowing money to build world-class bridges and railways, or rebuild our military. We are eating the seedcorn, and leaving tomorrow to look after itself. As GK Chesterton once observed: 'The modern world is not evil; in some ways the modern world is far too good.' We pursue isolated virtues without reference to others, putting compassion ahead of prudence. And the result of all this kindness, in the end, is to put the state on the path to penury, to drive away the productive workers who fund it, to destroy the systems that make it possible. Cutting benefits is cruel. Denying access to migrants who want a better life is cruel. But it is also cruel to destroy functioning countries that could generate huge increases in long-term global welfare if allowed to function properly today. Sometimes, you have to be cruel to be kind.
