The Chancellor has done it again.
Rachel Reeves is Queen of the U-turn. She was forced to backtrack on her first big decision, to scrap the winter fuel payment, and the precedent was set. After last year’s Budget she U-turned on efforts to cut the ballooning sickness benefit bill, by caving into a backbench rebellion.
She also did a sneaky reverse ferret on the Labour manifesto pledge not to increase National Insurance (NI), slapping it on employers rather than directly on workers. The Treasury then made a cack-handed attempt to cover her tracks. The U-turns have kept coming ever since.
In November she assured us she was “not coming back with more borrowing or more taxes”. Another quickfire U-turn duly followed.
Reeves has been forced to correct everything from her CV and childhood chess achievements to claims she didn’t know she needed a licence to rent out her property. It turned out she had been told. Twice.
And now she’s U-turning yet again. If it holds, this may offer some respite for pensioners.
The Budget is less than two weeks away, but even at this late stage she’s chopping and changing her plans by the day.
Lately, she’s hinted that she’s preparing to do the previously unthinkable and increase income tax.
That would involve back peddling on everything Reeves and Starmer promised during the election, and wrote in the Labour manifesto.
But it looked like she would do it anyway. Until last night, when the Treasury leaked her latest U-turn, to reverse the earlier U-turn on her own manifesto promise.
It seems Reeves has now decided against hiking income tax on November 26 after all. That follows a revolt from Labour MPs who fear losing their seats as voters rebel.
Pensioners will hope this decision holds.
Because if Reeves does increase income tax, she’ll do it in a way that explicitly hits retirees, to skirt around Labour’s pledge not to hit “working people”.
The most likely plan was to hike income tax by 2p, then soften the blow to workers by cutting the NI rate by the same amount.
This would punish pensioners (and landlords) because they’re liable for income tax, but don’t pay NI.
There was another risk I highlighted. This would have cut the NI rate to just 6p in the pound, half the 12p it was only a few years ago.
As NI shrank, it would have become easier to fold it into income tax, which would mean an even bigger potential tax hike for pensioners down the line.
Pensioners may have dodged a bullet here. But they shouldn’t breathe too easily. This could ultimately backfire on them.
The Chancellor still needs to find £30billion. If she can’t hike income tax, she’ll launch a desperate attack on pensions, savings, property, dividends and inheritances, anything she can get her hands on. And once again, pensioners will make the juiciest target.
That’s the problem with constant U-turns. You keep ending up in the same awful place.
