Reeves ‘targets tax raid on employee pension contributions at Budget’
Rachel Reeves will reportedly target employees’ retirement contributions in a bid to raise more money during this month’s budget crisis.
Accordingly, the Chancellor TimesIt is expected to limit the current tax relief on salary pension contributions by introducing a cap on the amount saved for retirement without making national insurance payments.
The paper claims that annual employee contributions of more than £2,000 will be subject to national insurance; it’s a move that could cost up to £2bn a year.
This comes at the end of a week in which Ms Reeves reportedly told the Office for Budget Responsibility (OBR) that she planned to increase income tax in the budget due on November 26.
Despite a commitment to the contrary in its manifesto, Labor is said to be balancing a 2p increase in income tax, offset by a 2p cut in national insurance, to effectively remove the burden on workers.
But this week Labour’s new deputy leader, Lucy Powell, warned that a cut to the manifesto could damage “confidence in politics” as a divide emerged at the top of the party over measures to plug an estimated £30bn gap in the public finances.
Economists have repeatedly warned Ms Reeves that Labour’s combination of U-turns, high debt and slow economic growth means she must raise taxes or scrap flagship borrowing rules in the Budget.
Limiting salary sacrifice programs would offer a smaller increase in public finances and would mostly affect high-income earners.
Times It said an employee earning £50,270 by putting aside ten per cent of their salary through a sacrifice scheme would pay an additional £240 per year in national insurance contributions under the proposal.
The current national insurance exemption for employers is also being considered to be limited, which could mean they would have to pay an additional £450 for the same income and sacrifice, the newspaper reported.
Ms Reeves is also said to have decided not to cut lump sum withdrawals from pensions and has offered some reprieve to pensioners. Retirees will still be able to withdraw up to a quarter of their total pension pot, up to £268,275.
On Wednesday education minister Bridget Phillipson showed her support for Ms Reeves, telling the BBC that “there are some major challenges in the economy” and that the government must do “the right thing, the necessary thing” for the long-term future of the public and the economy.
In his public announcement this week, the Chancellor warned the country that there would be huge tax increases in his budget. “We each have to do our part,” he said.
