Pensions and property. Two things that most of us want and work hard to get. They are both of a significant size with UK residential property weighing in at around £7tn, and the value of pension funds alone at around £2.5tn. They are also two assets that present challenges in terms of their ability to exacerbate inequality between groups and generations. Older people and buy-to-let landlords own far greater amounts of residential property than younger groups, an imbalance that is reflected in pensions too, although with an additional gender divide in the latter. As such, pensions and property present themselves as the perfect targets for a government hunting for ways to support the economy and shrink the nation’s current high debt burden and with no objections to basking in the happy consequence of chipping away at inequality.
One way of getting the economy off its knees is by removing obstacles to housebuilding, a policy that also tackles head on the problem of chronic undersupply and affordability for younger generations. Hence this government’s “once in a generation” radical reform of planning so that 300,000 new homes can be built each year. But dismantling planning laws, as Alex Newman highlights here, elicits huge resistance: no one wants the countryside to be concreted over and no one trusts developers to stick to brownfield sites.
Taxing property through a wealth tax or a new type of council tax has been suggested more than once during the pandemic as a way to raise billions, but tends to get an equally unreceptive welcome. Our ‘homes’, unlike second properties or buy-to-let rentals, are sacrosanct. Many people regard their home as their pension or as an inheritance for their children. A Wealth Tax Commission proposal earlier this year to apply a one-off 5 per cent levy on all assets in excess of £500,000 was roundly rejected by respondents when it was revealed that the assets would include people’s pension pots and homes.
Meanwhile, Treasury ministers cannot keep their eyes off those vast pots of pension wealth. Rumours abound of planned raids either in the form of a cut in pension tax relief or the Lifetime Allowance. Both would hit higher earners hardest. But why would the government introduce a measure that makes it harder for millions to build a decent pension? It is, as Chris Dillow says, prodigiously difficult for individuals to save for their old age even if they can afford to do so. It’s one thing to level up, but levelling down is a sly trick.
The Treasury is also eyeing up pension pots as a handy source of capital to be funnelled into its Long Term Assets Fund, to be used to fire up an economic revival. This would not be without risks for pension funds.
Although none of these ideas might appear palatable, it may be that we have to accept the least worst option(s) rather than rejecting them all. Balancing the books and a strong and lasting economic recovery are important, as is affordable housing. Perhaps the most disgraceful thing of all when it comes to housebuilding is not the location or the annual target numbers, it is the poor build quality and other problems that new owners are left with.
I would prefer a rise in the highest rates of income tax to a wealth tax applied bluntly and from a low base, and to raising corporation tax. And I would rather have a lower Lifetime Allowance than a lower rate of pension tax relief.