Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
British Prime Minister Rachel Reeves is unlikely to cut pension tax breaks for high earners in next month’s budget, leaving less for teachers, doctors and other higher-paid public sector workers, according to a report published on Monday. This is said to be a blow to workers.
As an Opposition MP, Mr Reeves has advocated for a fixed pension tax cut that would significantly increase the Treasury’s coffers, but a report by pension consultancy LCP argues that Mr Reeves will avoid this move. .
Sir Steve Webb, the respected former Liberal Democrat pensions minister and current Lib Dem partner, said high pension tax cuts would hit a sizable group of “mid-level and senior public sector employees”, adding: The group said that is unlikely to be what the government wants. alienate”.
The LCP report said Mr Reeves is likely to have a strong interest in pension tax cuts, which the Treasury estimates will cost around £48bn a year in net cost, but the reforms are fraught with political problems. I am doing it.
Currently, when people and their employers pay into a pension, their contributions are tax-free up to a set annual limit.
If your savings are later withdrawn as a pension payment, they will be taxed like any other income and you can usually receive a tax-free lump sum of up to 25%, up to £268,275.
George Osborne, the former Conservative chancellor from 2010 to 2016, considered reforming pension tax cuts in the 2016 budget, but withdrew the plan after fierce opposition from Tory MPs.
According to the LCP report, Mr Reeves is likely to consider imposing a National Insurance contribution rate on employer pension contributions, which would be a politically less painful change.
The report found that excluding these contributions from NI would cost the Treasury £23.8 billion a year and would encourage, among other things, the practice of “salary sacrifice” to reduce NI bills. .
“The Chancellor could introduce a new NI rate (e.g. 2%) on employer contributions and raise billions of pounds in doing so,” the report said.
“The big advantage for the chancellor is that in most cases this will have a lower political profile as it will not have an immediate pay impact on voters. It could also be implemented relatively quickly,” he added. Ta.
“The chancellor will likely be looking for relatively simple reforms that can be introduced quickly and raise significant amounts of money with minimal voter anger,” Webb said.”
In 2016, Mr Reeves (then a junior lawmaker and former shadow work and pensions minister) proposed setting the “uniform rate of pension tax relief” at 33%, below the 40% tax rate paid by high earners.
“This is a welcome boost for basic rate taxpayers and will reduce the savings subsidy for high earners while rewarding savings,” she said at the time.
The Treasury Department said it “does not comment on speculation regarding tax changes outside of fiscal events.” Reeves said tough decisions lie ahead on spending, benefits and taxes in the budget.
The Labor Party’s manifesto pledges that the government will not increase taxes on “working people”, specifically not increasing national insurance, basic income tax, high rates, additional rates or value added tax. It is filled with promises.
