Andy Burnham has been urged not to means-test the state pension as he grapples with a £4.7 billion funding gap in Sir Keir Starmer's defence investment plan. The new Labour MP for Makerfield, widely expected to succeed Starmer as Prime Minister, faces a difficult choice on how to finance the additional defence spending without breaking manifesto promises.
Funding Gap Emerges After Defence Announcement
Keir Starmer recently announced £15 billion of additional defence spending, but £4.7 billion of that remains unfunded. This leaves Burnham with a significant problem, according to Tax Policy Associates' Dan Neidle. “Where is he going to find £4.7bn?” Neidle asked, noting that cutting spending or increasing borrowing both seem politically or economically unattractive.
Neidle explained: “I expect the politics are such that Mr Burnham will not do that. I also expect he won’t increase borrowing – that seems unattractive/expensive at current gilt rates.” Instead, Neidle suggests Burnham will likely look for tax increases, especially after Burnham recently stated there is “some room for movement on tax” despite Labour’s manifesto promises.
Means-Testing State Pension Considered
Among 37 tax options presented by Neidle, means-testing the state pension stands out as a potential source of savings. The state pension currently pays out about £12,500 per year, and the government spends over £150 billion annually on pensioner benefits. Blocking even the wealthiest 1% from receiving the pension would raise over £1 billion.
“It’s easy to think that’s an irrelevant amount to wealthy retirees, and we should means test the pension to stop them benefiting,” Neidle wrote. However, he cautioned against such a move, describing it as potentially unjust.
Why Means-Testing Could Be Unjust
Neidle argued that a £12,500 annual pension, updated with the triple lock, is a highly valuable asset. “It would cost the average 66-year old somewhere over £250,000 to buy an asset like that,” he explained. A family just in the wealthiest 1% has average assets of £1.9 million per adult. Removing their pension would effectively expropriate over 10% of their wealth.
“That feels unjust. I doubt any Chancellor would do this,” Neidle concluded. The warning comes as Burnham faces mounting pressure to find the necessary funds without alienating voters or breaking Labour’s fiscal commitments.
