Upon taking office in 2024, the newly-minted Labour government was confronted with an unfamiliar and unwelcome sight; there was no money left. With much being made via briefings of a £22billion black hole left by the Conservatives in their pre-election budgetary plans, the Chancellor spoke of the “difficult decisions,” necessary to restore budgetary responsibility. This would be done through a strict set of fiscal rules that sought to limit day-to-day government borrowing, curb the growth of departmental expenditure and put the public sector debt burden on track to fall by 2029.
Yet, before polling day on July 4th 2024, the Party had promised that it would not raise the three main taxes levied by the government - income tax, VAT or national insurance - and it also set out an ambitious plan for improvement and reform in the NHS, education and welfare whilst ramping up defence spending. This has left the government facing uncomfortable choices, adopting policies and spending preferences that do not sit naturally in the Labour Party. From the attempt to limit access to Winter Fuel Allowance, the two-year psychodrama that raged over the two-child benefit cap, and the 2025 benefits reforms, the government has had to battle with its own backbench to give itself the fiscal headroom necessary under the fiscal rules.
These battles and internal disputes have obscured what good work the government has done – such as its success in hastening the green transition, raising the minimum wage and cutting NHS waiting lists – whilst provoking great rancour within the party in Westminster and in the country. Yet, with the Tories closing the non-dom tax loophole before the election, and squirrelling the funds raised from that into a cheap pre-election tax cut, there are few significant new sources of income the party can raise without provoking political and economic backlash. When the Chancellor did decide to raise employer’s national insurance from 13.8% to 15% and lower the threshold at which payment of NI begins to £5000 for employers, weeks of headlines bemoaning the death-knell this represented for pubs, high streets and local communities did little to help the Labour government’s image.
If a new source of income can therefore not be found, the government must spend the money it already has more effectively. And there is one sector of society where successive governments have shown little concern for efficiency, and paid far more heed to electoral interests: the elderly. The progress made from the harrowing levels of pensioner poverty in the early 20th century, where a lack of social security programmes, poor job security and weak wages would leave the retired destitute or a financial burden on their family stems, in no small part, from the achievements of Labour governments.
Whether it was the MacDonald government increasing the funding and accessibility of old age pensions in the first Labour government, Attlee’s National Assistance Act providing care even for those who didn’t pay in to national insurance schemes, the Wilson government’s destigmatisation of taking benefits whilst unemployment to Blair and Brown’s institution of a raft of additional schemes for the elderly, including the Winter Fuel Allowance, ending poverty amongst the retired is a success the movement can take great succour in.
Yet, as the working population’s growth slows into a plateau, and the healthcare needs of the elderly grow both more complex and more expensive, the way Britain does pensions needs to be reworked. And there is an economically, demographically and politically similar country to which we can look for inspiration: Australia.
Before the Labor governments of Bob Hawke and Paul Keating, Australia ranked as one of the worst countries in the OECD for retirement savings; it is now on track to be the country whose workers have the largest savings pot in the world, whilst expenditure on pensions in Australia is actually falling.
These apparently contradictory achievements are in large part due to the system of compulsory superannuation introduced by these governments. Over an individual's working life, a set percentage of their income is taken out of their paycheck and the cash is put into a superannuation fund. This can be managed by the state or national government, purposely-curated business, trade unions, or individuals themselves. This fund then invests in the sort of long-term, steady investments that accrue well over time, and at retirement the individual can either take their fund as a lump sum, or in a series of regular payments for the rest of their life. Through this system, Australia has provided its pensioners with dignity in retirement, financial independence and the horror of poverty, maintaining a low state pension as a protection from absolute deprivation.
It is not a perfect system; it's a tempting pot for conservative governments to raid for short-term gain, it has helped fuel Australia’s housing crisis due to the amount of wealth concentrated in the nation’s retirees, and the percentage of income taken for superannuation does need to rise, but was frozen at 9% by a previous government. But for Britain, it offers precisely the panacea to our pensioner problem the nation, and Labour, hungers for.
Superannuation funds are independent drivers of social change, investing heavily in the green transition and long-term infrastructural projects, ensuring that even where Labour cannot spend, or if it is out of government, progressive goals continue to be achieved. It would give dignity to the workers of this country, who could know that, in retirement, they would not have to clutch onto their houses as their only protection against illness or the need to enter into social care, but could instead enjoy financial comfort and security. Its adverse consequences can be managed by responsible, progressive tax measures like inheritance or capital gains tax, all the while leaving the government with the financial space to invest in services, the green economy and the NHS.
No system can promise perfection but for Britain, superannuation comes close; we shouldn’t hesitate to follow our antipodean social democratic colleagues, and seize its benefits.
---
Arun Lewis is a second year History and Politics student at the University of Oxford, with a particular interest in modern British political history and the history of social democratic/labour parties and movements.
All blog posts represent the views of the author alone and not necessarily those of Mainstream.
