Rachel Reeves says: ‘We’re going to focus on pensions’
Rachel Reeves is reportedly considering a plan to raise taxes on middle-class pensioners as Labor struggles to find extra funding ahead of the budget.
During the election, Sir Keir Starmer repeatedly said he would not raise taxes on “working people”, leaving him vulnerable to pensioner looting if he won.
It has now emerged that the Chancellor is set to “consider” Treasury proposals to introduce a 30% flat rate of pension tax relief.
The move would effectively raise taxes on the wealthiest taxpayers’ pension contributions by 10%, and could affect up to 6 million Britons.
The measure would raise billions for the government, while costing the biggest pension savers around £2,600.
Under the Treasury’s proposals, the current rates of pension tax relief (20%, 40% and 45%) would be merged into a new flat rate of 20% or 30%.
The Telegraph reports that sources say the 30% proposal would be politically easier to implement because it could be sold by Labour as a pensions boon for millions of basic rate taxpayers, while squeezing wealthier savers.
During the general election, the Conservatives accused Labour of preparing to target pensioners with a tax raid to plug a £38.5bn black hole.
They referred to a 2018 paper on Ms Reeve’s website proposing a restriction on pension tax relief to the basic rate of 20% only in order to find extra cash.
She argued that savings held in private pensions constituted an “inequality” and said that to combat this, “higher rate pension contribution reliefs could be limited” to generate £20bn a year in tax revenue.
Mel Stride, then pensions secretary, warned voters: “Keir Starmer and Rachel Reeves have already confirmed they will introduce a pension tax on state pensions, now they are going after your company pensions.”
“After abandoning its plan to raise VAT, Labour is left with a £38.5 billion black hole that it will have to fill with tax rises. We now know Rachel Reeves’ preference: another tax attack on pensions, in the style of her mentor Gordon Brown.”
Since promoting the 2018 booklet, Ms Reeves has insisted she has “no plans” to change the current pension tax relief regime.
The Treasury, however, has not denied plans for such changes to pensions, telling the Telegraph: “We have stressed the need for economic stability and have started to lay the foundations for that so that we can grow our economy and keep taxes, inflation and mortgages as low as possible.”
According to the IFS, a flat rate tax cut of 30% would equate to a tax increase of £2.7 billion.
While this would save the bottom 80% of earners around £230 a year, the top 10% would face a tax increase of around £2,600.
However, the proposals to set the flat rate at 20% would cost a staggering £15.1 billion – the equivalent of a 2p increase in the basic rate of income tax.
