personal finance

Pressure on chancellor to leave higher-earners’ pensions alone

Rishi Sunak, the chancellor of the exchequer, was on Sunday under mounting pressure to abandon a mooted £10bn raid on the pension tax relief offered to higher earners.

David Davis, former Brexit secretary, said it would be a “moral disgrace” to impose higher costs on pension savings, publicly conveying a message to Mr Sunak which has been privately aired by many Tory MPs.

The Treasury declined to comment on “speculation” in The Times that Mr Sunak would drop the proposal this week, as he prepares to send his Budget tax proposals to be costed by the independent Office for Budget Responsibility.

Sajid Javid, the former chancellor, and prime minister Boris Johnson had discussed cutting the pension tax relief for higher earners as a highly symbolic means of showing that the Conservatives were prepared to put up taxes to “level up” opportunity across Britain.

Pension tax relief was described by Philip Hammond, former chancellor, as “eye-wateringly expensive”. And other chancellors — including George Osborne — have considered reforming the system, only to be beaten back by Tory opposition.

Speaking on The Andrew Marr Show, Mr Davis said it would be “an economic farce” to cut the 40 per cent tax relief offered to higher earners on their pension contributions to the 20p rate offered to basic-rate taxpayers. Other Tory MPs have argued that the tax burden in Britain is already too high.

Mr Javid had considered announcing a review of pension tax relief with a view to making changes in a second 2020 Budget in the autumn. Pressing ahead with reform now, without sufficient “pitch rolling” to prepare the public, had concerned some Treasury officials.

Mr Sunak is weighing up ending the freeze on fuel duty, in place since 2011, as another revenue raiser, but that idea is also facing strong opposition from Conservative MPs.

The Conservatives are committed to making the tax system “fair and efficient” and vowed in their election manifesto to remove “arbitrary tax advantages for the wealthiest in society”.

Unless Mr Sunak raises taxes in his Budget, the public finances will be under considerable strain as he attempts to find ways to improve public services — notably the NHS and social care — with little money at his disposal.

Mr Sunak is expected to relax Mr Javid’s fiscal rule, which committed a government to running a balanced current budget on day-to-day spending by 2023. The Financial Times revealed this month that one option being considered would be to push that target out to 2025.

Another option on the table would be to give the chancellor a “plus or minus 1 per cent” leeway when trying to meet the balanced budget target, effectively allowing Mr Sunak to borrow more to fund current spending.


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