Reeves is warned taking pensions of excessive earners may set off strikes
Raiding the pension savings of up to six million higher earners could trigger crippling public sector strikes and hit economic growth, Rachel Reeves was warned yesterday.
The Chancellor is expected to consider a proposal from Treasury officials for a flat 30 per cent rate of pension tax relief.
The measure would clobber higher rate payers with an effective 10 per cent levy on their retirement contributions. The wealthiest would be hit with an extra £2,600 tax bill. Up to six million higher and additional rate taxpayers in total would be affected.
It could include senior public sector workers such as doctors, high-ranking teachers and civil servants, potentially leading to fresh industrial disputes.
Sir Geoffrey Clifton-Brown, a former deputy chairman of the Commons public accounts committee, said the measure would be ‘counterproductive’ to the Government target of having the fastest economic growth in the G7.
He said: ‘People will start putting less into their pension pots. The pots will be worth less and therefore investment in the country will be less.
Raiding the pension savings of up to six million higher earners could trigger crippling public sector strikes and hit economic growth, Rachel Reeves was warned
Keir Starmer’s (pictured) Chancellor is expected to consider a proposal from Treasury officials for a flat 30 per cent rate of pension tax relief
‘It’s the old, old story – the more you tax people the less money there is to circulate around the economy. Every tax increase is always counterproductive to growth. Anyone who’s paying a higher rate tax should be very worried.’
Sir Steve Webb, a former pensions minister and partner at pension consultants LCP, said the flat rate could potentially spark industrial action among senior public sector workers.
He said: ‘There are reasons why successive governments have shied away from a “flat rate” of relief. One is that implementing it would be horribly complex for millions, mainly in the public sector, still in defined benefit pension [final salary] schemes. And a key group affected could be senior public servants, who they (the Government) probably don’t want to upset right now.’
Sir Steve added: ‘Millions of higher earners might also be prompted to review whether a pension was still the most attractive way of saving.’
Former pensions minister Guy Opperman said: ‘It would be a disaster. All the evidence shows that the state has to create incentives for people to save.’
Pension contributions are tax deductible and basic rate payers get a relief equal to 20 per cent of their payments to cancel out the income tax that would otherwise be due.
For those earning more than £50,270, which is the higher rate, the relief is 40 per cent. Additional rate payers earning more than £125,140 get 45 per cent.
The Institute for Fiscal Studies has said a 30 per cent flat rate was the equivalent of a £2.7billion tax increase. Sources close to Ms Reeves said the proposal had not yet been presented to her.
