LABOUR’s pension tax raid is set to be ditched after warnings it would hammer up to a million teachers, nurses, and public sector workers.
Chancellor Rachel Reeves had planned to raise funds by reducing tax relief on those earning £50,000 or more per year.
CHANCELLOR Rachel Reeves was considering reducing pensions tax relief for those earning £50,000 or more annually.
Currently, people receive tax relief based on their income tax rate.
This means basic-rate taxpayers get 20 per cent relief, higher-rate taxpayers get 40 per cent, and additional-rate taxpayers get 45 per cent.
Under the proposed change, high earners would have seen their tax relief reduced to a flat rate, likely lower than 40 per cent or 45 per cent.
But the reduction in tax relief would have meant that higher earners might contribute less to their pensions, as the incentive to save more would be diminished.
But Treasury officials reportedly told her any move to cut the 40 per cent tax relief on pensions would unfairly punish state employees on modest incomes, like a nurse earning £50,000 who could face an extra tax bill of £1,000 a year.
One Government insider blasted the idea as “madness,” especially after public sector workers just received a pay rise.
Former Pensions Minister Steve Webb told The Times: “I don’t think this is something that Reeves will want to do, not least because it will infuriate public sector unions just weeks after the government agreed pay settlements with them.”
Union leaders are also understood to have cautioned the Treasury against moving forward with the proposal.
Chair of the British Medical Association pensions committee Vishal Sharma said: “Attacking our pensions in this way would completely reverse this progress by once again taking money away from doctors in a different way.
“‘Not only would this negate the recent hard-won pay rises but it would likely reignite the recent pay disputes that have been seen across the NHS.”
The plan has been compared to Labour’s earlier disaster of a proposal to bring back a lifetime cap on pension savings, which was ditched during the election campaign after backlash over its impact on junior doctors.
With Labour still desperate to plug a £22 billion hole in the public finances, Treasury officials are now hunting for other ways to rake in cash.
The Government has repeatedly cautioned the Budget on October 30 will involve “difficult decisions” on tax and spending.
A range of options for generating tax revenue have been touted, including increasing capital gains tax.
CGT is a tax on the profit made when you sell or dispose of an asset, like property or shares, for more than you paid for it.
You only pay tax on the gain, not the total amount received from the sale.
There may also be a temptation to make changes to inheritance tax to target the most wealthy.
The Sun’s Head of Consumer Tara Evans reveals the top predictions for the Autumn Statement:
Winter Fuel Payments
Chancellor Rachel Reeves has already announced that Winter Fuel Payments will be limited to those receiving pension credit and certain benefits. The benefit is worth up to £300 per year and currently is available to everyone over state pension age and those on certain benefits.
No rises to some taxes
Keir Starmer promised there would be no rises to National Insurance, Income Tax, Corporation Tax or VAT as part of Labour’s manifesto in the election race.
Inheritance Tax
It has been predicted that the Chancellor Racheal Reeves will make changes to inheritance tax rates or thresholds. One suggestion is the potential shortening of the gift period before death for tax exemptions.
Pensions
Pensions featured very high up in the King’s Speech, was this a hint at how high on the agenda it will feature in the budget? Experts say there are a number of options, including reintroducing the lifetime allowance cap. Ms Reeves has previously campaigned to reduce the tax relief that higher earners get on their pensions and to introduce a flat rate of 33% instead. Another possible option is changing the rules around pensions and inheritance tax.
Capital Gains Tax (CGT)
There is speculation that the £3,000 tax-free allowance could be scrapped or there may be an extension of CGT to other assets.
Business Rates
There are rumours of reforms to support small businesses, possibly basing rates on land value.
Fuel Duty
Possible rise in fuel duty, reversing the freeze since 2011 and impacting household costs. The Sun has backed drivers as part of its Keep It Down campaign since the start of 2011.
