It has taken a while for it to be extracted, but the cat is finally out of the bag. Last week, Chancellor of the Exchequer Rachel Reeves laid the groundwork for a gruesome attack on people’s personal wealth – an assault she had defiantly refused to confirm during weeks of fervent electioneering.

Quelle surprise: Money Mail warned it would happen as soon as Rishi Sunak called the General Election in late May and the likelihood of a Labour government became blindingly obvious.

Using the excuse of a £22billion black hole in the country’s public finances, Reeves warned that this financial chasm would have to be filled. ‘There will be difficult decisions around spending, around welfare and around taxes,’ she said, the results of which will form the backbone of the Budget scheduled for October 30.

This hole will not be filled through higher income taxes or hikes in either National Insurance contribution rates or VAT – taxes that Labour pledged not to touch in its election manifesto. Nor through pay restraint in the public sector – Reeves has awarded public sector pay rises worth £9.4billion.

No, the hole will in part be funded by the imposition of means testing for winter payments and horrible taxes on our ability to build personal wealth – retirement money designed to ensure our later years are not undermined by financial insecurity and we are not dependent upon state benefits.

Plain and simple, a vicious attack on thrift is coming our way.

Although the precise details of the assault will not be known until Reeves’ Budget, it is not hard to work out where it will be targeted.

It is likely that the ability to save via company or personal pensions will be compromised. Also, wealth we pass on to loved ones when we die is likely to attract more tax, as will the capital gains we make from the sale of shares, second homes or buy-to-let properties.

Are these justified taxes to correct the Conservatives’ alleged mismanagement of the economy? No. This is Labour showing its true colours. It is payback time.

For all of Reeves’ ‘city cred’ and Sir Keir Starmer’s smarm, new Labour 2024 believes it is time for a dose of good old socialism.

John McDonnell, shadow chancellor under Jeremy Corbyn and now suspended from the Labour Party, must be thinking Christmas has come early. A thought no doubt shared by Angela Rayner. Up the workers! Down with prudence!

So, what is Reeves likely to do to extract more revenue from our financial war chests?

REEVES MAY FIDDLE WITH TAX RELIEFON PENSIONS 

IF THE rumour mill is an indication of what is coming, Reeves could well overhaul the incentives that the state offers to encourage us to put money aside for retirement through a pension. Currently, pension contributions attract tax relief, which means they are tax deductible. The amount of relief is determined by how much income tax someone pays.

For basic rate taxpayers, it is 20 per cent, while higher and additional rate taxpayers (earning respectively more than £50,270 and £125,140) enjoy 40 and 45 per cent relief (the relief regime differs slightly in Scotland).

In simple terms, a £100 contribution into a pension currently costs a basic rate taxpayer £80, while for higher rate and additional rate taxpayers it costs £60 and £55. It’s not a one-way ticket. Although investments within the pension wrapper grow tax-free, the state gets back a chunk of tax when people take their pension – with withdrawals (above the right to tax-free cash) subject to income tax.

The idea that Labour is now mulling over, but has yet to commit to, is to replace these three reliefs with a flat rate – maybe 25 per cent or more likely 30. It would tick all the boxes for Labour. It would give basic rate taxpayers a better pension deal, while hitting up to six million ‘wealthy’ earners with an effective 10 or 15 per cent levy on their pension contributions.

In other words, it would help redistribute pension wealth back in favour of Labour’s so-called ‘workers’ (most of us work damn hard for our money).

HOW YOUR PENSION COULD BE HIT  

WEALTH asked Andrew King, retirement planning specialist at wealth manager Evelyn Partners, to do some number-crunching, spelling out in pounds and pence the impact of 30 per cent tax relief on our ability to save.

It’s a bit crude, full of assumptions, but it demonstrates how pernicious this tax relief change could be on the size of pension pots that many hard-working people are able to build for their retirement.

First, he has calculated the size of pension fund that people now aged 25 and 35 could build from scratch under the current pension tax relief regime. The people he chose were a basic rate taxpayer earning the average UK salary of £28,000, a higher rate taxpayer on £55,000 and an additional rate taxpayer on a salary of £130,000.

He then did the same calculations, assuming the introduction of a flat 30 per cent rate of relief. The pots accumulated are at age 65 and based on annual contributions of 8 per cent – 3 per cent from an employer and 5 per cent from the employee – with the tax relief reinvested back into the pension, as it would be in common ‘salary sacrifice’ arrangements. These are standard workplace pension contribution rates.

The numbers confirm that the ability of basic rate taxpayers to build wealth is improved, but is seriously compromised for higher and additional rate taxpayers.

For example, assuming annual investment returns of 4 per cent (net of charges), the 25-year-old basic rate taxpayer would build a bigger pension fund under the 30 per cent flat rate scheme than under the current arrangements – £234,140 versus £212,850. In contrast, the 25-year-old higher rate taxpayer would see their pension shrink in value by £41,810 – from £418,110 to £376,300. Additional rate taxpayers would ‘lose’ £174,660. Assuming higher annual investment growth of 6 per cent, the respective gains and losses are bigger (see table) – a £34,670 gain for the 25-year-old basic rate taxpayer (from £346,660 to £381,330), and a £68,102 reduction for the higher rate taxpayer (from £680,952 to £612,850). Additional rate taxpayers would ‘lose’ £284,450.

Yet King says these numbers don’t fully represent the punitive impact of a 30 per cent flat rate on taxpayers. He says: ‘Let’s not forget that millions of today’s basic rate taxpayers are the higher and additional rate taxpayers of the future. This is the case more so than ever as millions of workers are being drawn into higher tax bands because of frozen income tax thresholds.’

These thresholds were frozen until 2028 by then-Tory chancellor Jeremy Hunt – and it is more likely that Reeves will extend rather than unfreeze them.

King adds: ‘Jumps in marginal tax rates on income can act as disincentives to harder work and advancement, so if you then extinguish one significant benefit of climbing those tax steps – the ability to have pension savings boosted by higher rates of tax relief – that could hit motivation and productivity.’

He says our pensions system is ‘envied worldwide for the encouragement it gives to private pension provision’, but warns: ‘With study after study showing people aren’t saving enough for retirement, the flat rate relief idea seems a dangerous move that could throw an almighty spanner into the system, reducing the incentive to save into a pension.’

King’s concern about a flat rate of relief is not universally shared. Romi Savova, chief executive of pensions provider PensionBee, says a flat rate ‘could create a simpler, more uniform approach to pension tax relief, offering a significant advantage to millions of [basic rate] taxpayers by enabling them to accumulate greater pension wealth’.

Tom McPhail, a pensions expert at financial consultant the Lang Cat, does not rule out the introduction of a flat rate of tax relief. But he says it would be ‘hugely complicated’ to introduce.

His view is that other changes may be afoot. These, he says, could take the form of a reduction in the amount of tax-free cash that can be taken from a pension. This is currently up to 25 per cent of the amount built up in a pension, subject to a maximum cap of £268,275.

Alternatively, he says, it may make pensions that are inherited when someone dies subject to inheritance tax – they are currently exempt.

HOW ELSE COULD REEVES PLUG THE £22BN HOLE?

IT is not just pensions that are on Reeves’s radar. She could also raise more tax from capital gains on things such as the sale of second homes, buy-to-let properties and shares held outside of an Individual Savings Account.

Currently, any capital gains crystallised above the annual tax-free allowance of £3,000 are taxed at either 10 or 18 per cent for basic rate taxpayers – 10 per cent on share gains and 18 per cent on property. For higher and additional rate taxpayers, the equivalent rates are 20 and 24 per cent.

Reeves could well hike up these rates, so they are in line with income tax rates.

The inheritance tax regime could also become more onerous with an increase in the current 40 per cent charge on estates above the nil-rate allowance of £325,000.

Inherited wealth is despised by Labour, who mistakenly believe it is only the rich who pay tax on it.

Nothing could be further from the truth – it’s a tax increasingly ensnaring Middle Englanders.

KEEP SAVING TO BUILD UP YOUR WEALTH

ALTHOUGH higher wealth taxes are heading our way, nothing is set in stone. We don’t know what higher taxes Reeves will target first and when changes will come in.

It’s unlikely that if big changes are confirmed in October’s Budget, they will be introduced straight away.

The new tax year commencing on April 6, 2025 is a more likely starting date, while some major changes such as an overhaul of pension tax relief could be subject to industry consultation, delaying their introduction even longer.

It is essential therefore that conjecture doesn’t derail your current savings plans. So put as much money into a pension as you can afford to without compromising your day-to-day household finances.

If you are employed, you are likely to benefit from a generous employer’s contribution into your pension – and the more you put in, the more they may be prepared to put in too.

The amount you can put into your pension each year – and receive tax relief on – is £60,000. It’s a generous allowance – use it (it could be slashed in the future).

Savers should also complement pension saving by shielding cash and investments inside a tax-friendly Individual Savings Account. Isas appear not to be on Reeves’s wealth-grabbing radar, so use your annual £20,000 allowance (£9,000 for children).

In terms of inheritance tax, parents and grandparents should utilise various gift allowances that allow them to pass on wealth tax-free. (These are explained at: https://www.gov.uk/inheritance-tax/gifts).

Higher and additional rate taxpayers looking to shield gains on shares should consider using this year’s annual capital gains tax allowance – ahead of a more draconian tax regime coming in next April.

Reves throws a wobbly at ten million pensioners 

Rachel Reeves’ tenure as Chancellor of the Exchequer has got off to a shaky start. Wobbly as Hartley’s Jelly. 

Her update on the country’s fragile public finances, given to the House of Commons six days ago, was loaded with financial poison as she announced a wicked curtailment of the winter fuel payment which will result in ten million pensioners no longer receiving the benefit, worth up to £300.

As a result, those people who have reached state pension age in England and Wales will now only receive the payment this winter if they receive pension credit – or a small number of other means-tested benefits (the devolved governments of Scotland and Northern Ireland make their own rules).

The announcement means that up to 1.2million financially-challenged pensioners who are eligible for pension credit but who do not claim it (either through pride, unawareness or an inability to go through the application process) will miss out. 

As will many who just fail to qualify for the benefit, but whose finances are mightily stretched. My mailbox has been overwhelmed by readers spitting blood over Reeves’ move.

They feel that pensioners, who have no representation in government, have been unfairly picked on.

 I spent five hours on the phone to readers who will lose the benefit. For some, its loss will put more pressure on already fragile finances. For others, it will make little difference, but they feel betrayed after Labour had vehemently denied, pre-election, that the payment would be means-tested.

In the first of these two camps sits Julia Holmes, a 69-year-old retired carer from Saltash in Cornwall. Julia, who is divorced, has already had to adjust financially to the fact that her state pension, promised at age 60, was not paid until 66 because of the equalisation of state pension age for men and women. Now, she will lose her fuel payment.

‘You work hard for 40 years in a sector which does not pay well,’ says Julia. ‘You put a little aside for a rainy day, struggle to get by and then this woman walks into Number 11 Downing Street and, without an ounce of sympathy, decides to make pensioners like me worse off.’

She adds: ‘Politicians are so out of touch. Rachel Reeves should come to Cornwall to see with her own eyes the hardship that many pensioners face – some relying on food banks to help them get by.’

John Lloyd, from Letchworth in Hertfordshire, sits in the other camp. John, 84, has been married to Anita for 62 years. 

Founder of a successful double-glazing company (Kindlelight Windows), his retirement is underpinned by income from several pensions set up during his working life. 

‘We won’t miss the payment,’ he says. ‘We live in a four-bedroom house and if things go to hell in a handcart under this Labour government, we can always downsize.

‘But it’s the duplicity of it all. On the one hand, Labour is happy to take from pensioners, claiming the country’s finances are in a mess. But on the other, it’s quite happy to pay huge sums of money to public sector employees to keep in favour with the unions.’

His view is shared by many. Maggi Warner, 75, a retired personal assistant from Yate in South Gloucestershire, describes the ‘raid’ on pensioners as ‘despicable’. 

Married to Barry, 78, who worked in travel, Maggi says the removal of the benefit is a ‘cheap shot’. ‘Us pensioners need to have our voice heard inside government,’ she adds.

Maggi is quite right. Pensioners should be represented inside government (Baroness Ros Altmann would be a brilliant voice).

Twenty-two organisations have written to Reeves calling on her to halt the clampdown on the winter fuel payment. 

Charity Independent Age has co-ordinated the letter and is urging pensioners to email their MP and express their anger at the move. It is also urging them to check whether they qualify for pension credit by visiting gov.uk/pension-credit/how-to-claim.

I fear Reeves is not for turning.

Metro’s a shadow of former self 

Metro Bank was a force for good when it launched 14 years ago. Yet it is now a shadow of its former self because of serious accounting errors made five years ago which undermined its financial strength.

Although the bank is edging closer to financial stability after securing £925 million of emergency refinancing last autumn, it has come at a heavy price. A lot of the things that differentiated Metro from the rest of the high street banks have been forgone as chief executive Dan Frumkin has cut costs.

Its commitment to seven-day high street banking has gone, with most of its 76 branches no longer opening on a Saturday or Sunday. Weekday opening hours have also been reduced although, in Metro’s defence, its branches are open for longer than most rivals.

It has also exited the credit card market, leaving affected customers to find a new card issuer in September when their accounts are closed. Some of those I have spoken to are annoyed by Metro’s move.

In addition, personal bank account customers complain that they cannot use a post office to do basic banking – unlike those with accounts run by the mainstream high street banks.

Together with the recent sale of £2.5 billlion of mortgages to NatWest, Metro is becoming something of a one-trick pony whose customer focus USP (unique selling point) is rapidly diminishing.

The only light on the horizon is that new branches continue to be opened (Chester and Gateshead outlets are planned for late spring next year).

More importantly, Frumkin appears to have saved the bank from financial annihilation.

M&S Bank muddles the numbers 

M&S Bank has got its knickers in a twist in its latest communication to some credit cardholders. Dated July 29, the letter informs customers that interest rates are rising on October 24 – from 21.9 to 23.9 per cent on purchase and balance transfers (27.9 to 29.9 per cent on cash payments).

This contradicts the previous mailing on interest rate changes which informed cardholders that interest rates were rising in late March from 21.9 to 24.9 per cent (27.9 to 29.9 per cent for cash).

Even Chancellor Rachel Reeves, an expert in fudging numbers, would be unable to present an actual decrease as an increase.

M&S Bank was invited to clarify matters. It asked for evidence, which I duly sent them (the two letters sent to cardholder Jenny Wall in Birmingham).

It then blamed a ‘technical error’. As for Jenny, she has been told she will get a response within five days. ‘Pants,’ I say.

I got my interest rate call wrong 

Prior to Thursday’s 0.25 per cent cut in base rate to five per cent, experts were split on whether the Bank of England would stick or twist: 60 per cent predicting a cut, the rest forecasting no change. The twisters got it right.

Although rate cuts are not good news for savers, the reduction (the first in four years) is welcome, especially if it helps stimulate both the UK economy and the UK stock market which didn’t react positively to the news.

I predicted that base rate would stay at 5.25 per cent and that if I was wrong, I would make a £50 donation to charity. The donation, topped up by gift aid, has been made to Prostate Cancer UK.