Chancellor Rachel Reeves is poised to announce significant changes to pensions on November 14, following a contentious budget last month that included an increase in National Insurance payments for employers. This has sparked fears of pay rise freezes and job losses.
The Chancellor is also anticipated to use her inaugural Mansion House speech in the City of London to outline the “spell out the next phase” of Labour’s governmental plan, building on her key pledge in October’s Budget to “fix the foundations” of the economy. Her address on Thursday will be delivered amidst criticism from the hospitality sector, including signatories of a letter organised by UKHospitality, who have expressed concerns that alterations to employers’ national insurance contributions could result in job losses.
The Times reports that it is believed the changes will involve merging local government pension schemes – a strategy the government hopes will free up £200 billion to stimulate the UK economy. Experts at the Pension Insurance Corporation, a specialist insurer, suggest that consolidating the schemes could unlock hundreds of billions of pounds of investment to enhance UK infrastructure and bolster economic growth.
Local government pension scheme assets amount to £392 billion but are managed by 86 small funds. “That fragmentation leads to excessive spending on fund managers and advisers and prevents large-scale investment in productive assets,” stated the Pension Insurance Corporation.
The Times reports that Reeves advocates for sweeping reforms resembling Canada’s pension model, calling for a merger of local authority pension schemes worth around £400bn. The Chancellor met with the executives of these pension schemes back in August.
According to city sources cited by the newspaper, there is a push for further reforms that would release £225bn tied up in defined benefit pension scheme surpluses. In an anticipated speech, Reeves is due to flesh out how the government intends to leverage additional borrowing capacity from relaxed fiscal rules announced in last week’s Budget.
Projections indicate she will outline strategies to deploy massive sums from local government pension funds to fuel economic growth across the UK. Jeremy Hunt, her Conservative forerunner, had already initiated moves to encourage these funds to invest more in domestic assets.
Additionally, Reeves is expected to tackle taxation worries sparked by the recent budget, which included an increase in employers’ national insurance contributions by 1.2 percentage points to 15 per cent and a reduction of the threshold for the levy to £5,000 from £9,100. This has led businesses to warn of potential price hikes to compensate for the uptick in their tax outlay, while economists have voiced concerns over the possibility of suppressed wages for lower-paid employees due to the lowered payment threshold.
Ms Reeves is launching her pension reforms, which Treasury insiders claim could release billions for vital infrastructure and businesses. She will advocate for “growth brought by unlocking private sector investment, including in our financial services industry, and growth brought about by reform – both of our economy and of our public services”.
The Chancellor is set to emphasise Britain’s “the untapped potential we have here in Britain, the opportunities available that can be realised, the partnerships that can be forged, the wealth that can be created”, the opportunities for realisation, forging partnerships, and wealth creation as “the prize on offer”. Potential collaborations with economies from Europe, the Middle East, Asia, and the US are on the cards.
In the previous month’s Budget, Ms Reeves announced a modification to employers’ national insurance contributions (NICs), anticipated to generate over £25 billion for the Treasury. This includes raising the employer NIC rate from 13.8% to 15%, and lowering the threshold for paying this tax from £9,100 per year to £5,000.
However, in a recent letter, board members of UKHospitality and over 200 businesses, such as JD Wetherspoon, IHG Hotels and Resorts, and Tortilla, cautioned that “changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon”.
They went on to say: “Unquestionably they will lead to business closures and job losses within a year. There is no capacity to pass the costs onto customers. Businesses would be reluctantly forced to raise prices by 6-8%, fuelling inflation, yet could not realistically do so as our customers are at the end of their ability to pay more.”
“Instead, many businesses would have to reconsider investment and drastically cut jobs and reduce the hours of team members.”