Jeremy Hunt warned against £10bn tax raid on pensions savings

2022-11-06

Jeremy Hunt is warned against £10bn tax raid on pensions savings: Chancellor ‘eyes move to reduce relief on contributions by higher earners’

Chancellor warned off alienating Tory voters with change to pensions tax relief
Jeremy Hunt and Rishi Sunak continue to put together Autumn Statement plans
Pair reported to be eyeing change to tax rules related to pensions savings

Jeremy Hunt is being warned against alienating Tory voters following reports the Chancellor could oversee a £10billion tax raid on pensions savings by higher earners.

The Chancellor and Prime Minister Rishi Sunak are continuing to put together their plans for the Autumn Statement on 17 November, as they look to plug an estimated £50billion blackhole in the public finances.

Mr Hunt and Mr Sunak are said to be looking towards those ‘with the broadest shoulders’ to bear the brunt of the fiscal tightening.

It has now emerged the Chancellor is in talks over changing tax rules designed to encourage workers to save into their pensions pots.

Basic rate taxpayers get 20 per cent tax relief on their pension contributions, while higher-rate taxpayers can currently claim 40 per cent pension tax relief and additional rate taxpayers can claim 45 per cent pension tax relief.

But, according to the Sunday Telegraph, ministers have discussed reducing the rate at which tax relief is applied for higher-rate or additional rate taxpayers from 40 per cent or 45 per cent, to as low as 20 per cent.

A report by the Pensions and Lifetime Savings Association found a flat rate of 20 per cent would raise between £8billion and £10billion a year.

But former pensions minister Sir Steve Webb warned the Tories: ‘If you wanted to alienate your core vote by taking away the higher rate of tax relief then you have done the job.’

Jeremy Hunt is being warned against alienating Tory voters following reports the Chancellor could oversee a £10billion tax raid on pensions savings by higher earners

The Chancellor and Prime Minister Rishi Sunak are continuing to put together their plans for the Autumn Statement on 17 November

Ex-chancellor George Osborne, who was recently been spotted in Downing Street, was warned off changing pensions tax relief in 2016 by Tory MPs threatening a ‘riot’ over a cut

The cancellation of the 1.25 percentage point hike in National Insurance has come into effect today.

The rise was introduced by Boris Johnson’s government, with Rishi Sunak as chancellor, in April and reversed by former chancellor Kwasi Kwarteng in his disastrous mini-Budget last month.

The scrapping of the hike is one of few economic policies introduced by Liz Truss and Mr Kwarteng that was not axed by Chancellor Jeremy Hunt last month and has stayed in place with Mr Sunak as Prime Minister.

The levy was devised by Mr Sunak when he was chancellor to pay for social care and deal with the NHS backlog from the Covid crisis.

A Treasury source told the newspaper the move ‘has been discussed’ in ongoing talks over the Autumn Statement, but no ‘white smoke’ had yet emerged.

It reported that under the plans being considered, all pensions contributions could be taxed at 20 per cent, regardless of an employee’s income tax bracket.

Other options would be to have the flat rate higher, at 25 per cent, to give a boost to basic rate taxpayers, or to reduce the amount of tax relief enjoyed by higher earners but not to as much as 20 per cent.

Mr Hunt will be wary of fiddling with pensions tax relief after former chancellor George Osborne was warned off such a move in 2016 by backbench MPs threatening a ‘riot’ over a cut.

Mr Osborne has recently been spotted in Downing Street as Mr Hunt seeks the advice of former Treasury ministers ahead of his Autumn Statement.

Sir Steve, the ex-Liberal Democrat MP who was pensions minister until 2015 and is now a partner at the firm Lane Clark & Peacock, said: ‘£10 billion means five million, mainly Tory, voters losing £2,000 per year each.

‘If you wanted to alienate your core vote by taking away the higher rate of tax relief then you have done the job.’

Asked about the Sunday Telegraph report this morning, Cabinet minister Oliver Dowden told Sky News: ‘There’s an awful lot of speculation in the newspapers, some of it’s correct, some of it’s not correct.

‘I can’t go into any individual stories. But what I can say is there will be difficult decisions in that Autumn Statement.’

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