LABOUR’S pension tax raid is set to be scrapped after warnings it will hit millions of teachers, nurses and public sector workers.
Chancellor Rachel Reeves planned to raise funds by cutting tax credits for those earning £50,000 or more a year.
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Chancellor Rachel Reeves Credit: Getty
How was Labour’s pension tax?
CHANCELLOR Rachel Reeves has considered cutting pension tax relief for those earning £50,000 or more a year.
Currently, people get tax relief based on their income tax rate.
This means that basic rate taxpayers get a 20 percent relief, higher rate taxpayers get 40 percent, and additional rate taxpayers get 45 percent.
Under the proposed change, high-income tax credits would be reduced to a flat rate, possibly lower than 40 percent or 45 percent.
But cutting tax credits would mean higher earners could contribute less to their pensions, as the incentive to save more would be reduced.
But Treasury officials reportedly told her that any move to cut the 40 per cent tax relief on pensions would unfairly penalize civil servants on modest incomes, such as a nurse on £50,000 who could face an extra tax bill of £1,000 a year.
One government insider called the idea “crazy,” especially after public sector workers had just received a pay rise.
Former pensions minister Steve Webb told The Times: “I don’t think it’s something Reeves will want to do, not least because it will anger public sector unions just weeks after the government agreed to a pay settlement with them.”
Union leaders are also heard to have warned the Finance Ministry against going ahead with the proposal.
The chairman of the British Medical Association’s pensions committee, Vishal Sharma, said: “An attack on 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 reverse the recent hard-fought pay rises, it would likely reignite the recent pay disputes seen across the NHS.”
The plan draws comparisons with Labour’s earlier disaster of a proposal to restore a lifetime cap on pension savings, which was dropped during the election campaign after a backlash over its impact on young doctors.
With Labor still desperate to plug a £22 billion hole in the public finances, Treasury officials are now looking at other ways to raise money.
The government has repeatedly warned that the October 30 budget will include “tough decisions” on taxes and spending.
A number of options for generating tax revenue have been promoted, including an increase in capital gains tax.
CGT is a tax on the profit you make when you sell or dispose of an asset, such as property or shares, for more than you paid for it.
You pay tax only on the profit, not on the total amount received from the sale.
There may also be a temptation to focus inheritance tax changes on the wealthiest.
Predictions for the fall statement
The Sun’s head of consumer Tara Evans reveals the top predictions for the autumn statement:
Winter fuel payment
Chancellor Rachel Reeves has already announced that the winter fuel payment will be limited to those receiving pension credit and certain benefits. The allowance is worth up to £300 a year and is currently available to anyone over State Pension age and those on certain benefits.
No increase in some taxes
Keir Starmer has promised there will be no increase in National Insurance, Income Tax, Corporation Tax or VAT as part of Labour’s election manifesto.
Inheritance tax
Chancellor Racheal Reeves is expected to change Inheritance Tax rates or thresholds. One suggestion is to potentially shorten the pre-death gifting period for tax exemption.
Pensions
Pensions featured very highly in the king’s speech, was that a hint of how high on the agenda it would be in the budget? Experts say there are a number of options, including reintroducing a lifetime allowance cap. Ms Reeves previously campaigned to cut the tax relief higher earners get on their pensions and instead introduce a flat rate of 33%. Another possible option is to change 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 that CGT could be extended to other assets.
Business prices
There are rumors of reforms to support small businesses, which would probably be based on land values.
Fuel duty
A possible increase in fuel tax, the lifting of the freeze from 2011 and the impact on household costs. The Sun has been supporting motorists as part of its Keep It Down campaign since early 2011.
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