Huge tax threshold change plan in Budget would ‘attack’ scheme used by | UK | News
A major tax raid on a scheme used by millions of Brits is reportedly being prepared for next week’s Budget. The Treasury is said to be preparing to make a tax change that will affect salary sacrifice plans.
These plans allow employees to pay less tax by devoting a portion of their gross salary to a pension. But Chancellor Rachel Reeves reportedly believes the current system is unfair.
Finance Times He reported that reforming the salary sacrifice plan, which Reeves will announce on Wednesday, November 26, will be one of the biggest measures in the Budget.
According to the FT, the new regulation will reduce the amount of money people can sacrifice from their paychecks to put into their pension funds without paying National Insurance.
Today, around five million basic taxpayers benefit from schemes for pension contributions. The cap could push many of these people into a Budget reshuffle.
The planned move has been criticized by business leaders and other critics who believe it could harm the UK economy. Reeves came under fire in his last Budget for measures such as National Insurance contributions, which many companies complained were added to their costs.
The Chancellor is trying to plug a nearly £20bn gap in the country’s finances to comply with his own fiscal rules. The proposed increase in Income Tax has now been ignored and other commitments made by the Government mean the Treasury has fewer big targets it can tax to raise large sums of money.
Reeves is therefore said to be planning what Westminster insiders call a ‘smorgasbord’ approach, where a large number of smaller taxes are introduced instead of increasing the big taxes such as Income Tax, VAT and National Insurance, which Labor had promised not to raise before coming to power.
The government has previously put forward a proposal to set a threshold at which people can sacrifice their wages while receiving a tax benefit of £2,000 per year. The FT said officials believe this could raise around £2bn a year.
A source told the FT that the Chancellor had made it “clear that he wants to ensure the tax system is fair and sustainable while protecting ordinary workers and supporting retirement savings”. They said salary sacrifice was not possible for every worker, including those earning close to the National Living Wage and the self-employed.
The Institute for Fiscal Studies is also said to have called the system a “bizarre, complex and incomprehensible implementation.”
But critics say such a change would reduce the amount people save for the future.
Anna Leach, chief economist at the Institute of Directors, said: “This is another blow for business as it adds complexity and creates another burden when they don’t really need it.”
Sir Steve Webb, a former pensions minister and now partner at pensions consultancy LCP, told the FT: “It is difficult to see how such a policy would be consistent with the government’s aim of protecting ‘ordinary working people’.”
Craig Beaumont, director of external affairs at the Federation of Small Businesses, said: “The Chancellor has promised he won’t be coming back for more, but attacking wage sacrifice, which has been in place for 40 years to help employers help their employees, will impact businesses and their employees.”
Treasury declined to comment.
