Pensioners could pay the price of funding Labour tax cuts for working people, a leading think tank has warned.
Paul Johnson, the director of the Institute for Fiscal Studies (IFS), said that the party will have to raise cash elsewhere if it wants to make big cuts to either income tax or national insurance.
It comes as Sir Keir Starmer vowed to “tilt Britain back towards the interests of working people”, hinting that he is keen to cut their “very high” tax burden.
He said that he wants “more people to have more money in their pocket” but stressed the priority for now should be growth.
If Labour were to cut taxes on working people, Mr Johnson said that one alternative way to generate revenue would be to slash tax relief on pension contributions, meaning that today’s employees would be able to save less for free.
More expensive homes could also be saddled with higher council tax bills, a policy that would hit many current pensioners who tend to live in larger, more valuable properties, according to IFS research.
Meanwhile, if inheritance tax rules were tightened, it would make it harder for the elderly to leave money to their families when they die without incurring a levy.
Following a major speech on Thursday, in which he vowed to fight the next election on the economy, Sir Keir said that Labour would reverse any move by the Tories to slash the so-called “death tax”.
No 10 is understood to be looking at axing the levy in the spring in a pre-election giveaway to boost Rishi Sunak’s chances of victory.
But the Labour leader told Sky News: “I don’t think that further tax cuts for those that are very wealthy with nothing for working people is the right way forward, so I’d oppose it. It wouldn’t be what we would do and of course we would change that if we got the opportunity to do so.”
He also refused to say whether he would end the freeze on income tax thresholds – despite his party’s criticism of the policy – insisting that growth has to take priority.
“I’m not going to make promises that I can’t keep,” he said.
Meanwhile, he cast further doubt on Labour’s flagship proposal to invest £28 billion per year in a green prosperity fund, saying if the public finances are not sufficiently healthy, then “we will borrow less”.
Discussing Labour’s options for tax reform, Mr Johnson said: “They have got all sorts of choices.
“There is clearly a case for increasing council tax on more expensive properties, clearly a case for reforming capital gains tax to get more money from that. They could close inheritance tax loopholes.
“They could decide they’re going to reduce tax relief on pensions.”
A raid on pension contributions risks making millions of current workers poorer in retirement.
Currently, people receive tax relief worth up to 100 per cent of their annual earnings on contributions that they make into a private pension. It means that an employee earning £30,000 would be able to save £30,000 for free each year.
Staff on workplace pension schemes can receive tax relief automatically when their employer takes the contributions out of their pay, before deducting income tax.
Labour has already pledged to impose VAT on private school fees and scrap the non-doms tax loophole to help fund its spending commitments.
Reports suggest that Rachel Reeves, the shadow chancellor, is also considering a cut to income tax or national insurance to win over voters struggling with the cost of living crisis.
But Mr Johnson warned that Labour would not be able to follow through with this and balance the national budget without raising levies elsewhere.
He said: “When they talk about tax cuts, they’re not talking about net tax cuts. They might be talking about some tax cuts offsetting bigger tax increases. I’d be astonished if what they proposed would be a net tax cut.”
The IFS chief also warned that there is far less scope to slash public spending than in 2010, when George Osborne, the chancellor at the time, made cuts to address the deficit.
He added: “There was an awful lot of fat to go, back in 2010. That just isn’t there any more. So I don’t think anyone’s going to try it.”
Speaking after the Autumn Statement, Ms Reeves stressed that Labour is “the party of economic and fiscal responsibility”.
And in December, Sir Keir said that he would not “quickly turn on the spending taps” because of the state of the nation’s finances.
Labour was contacted for comment.
