Tax breaks on pen­sions are eye-wa­ter­ingly ex­pen­sive says Ham­mond

So what might be com­ing in Bud­get?

Daily Mail - - EUGENIE’S MAGICAL DAY - From Alex Brum­mer in Bali and Hugo Dun­can in Lon­don

PHILIP Ham­mond has given his strong­est sig­nal yet that he is pre­par­ing to raid pen­sion pots to fund ex­tra health spend­ing.

Speak­ing on a trip to Bali, the Chan­cel­lor said that tax breaks given to those sav­ing for re­tire­ment had be­come ‘eye­wa­ter­ingly ex­pen­sive’.

The com­ments fu­elled spec­u­la­tion that he is plan­ning yet an­other at­tack on pen­sions as he scrab­bles for cash in this month’s Bud­get.

But crit­ics said such a move would fur­ther un­der­mine the sav­ings cul­ture.

Work­ers cur­rently pay no tax on in­come they put into a pen­sion pot.

In­stead, they pay tax when the money is taken out in re­tire­ment.

This means it costs a ba­sic rate tax­payer £80 to save £100 into their pen­sion, a higher rate tax­payer £60, and a top rate payer £55.

The tax break – worth £39bil­lion a year – is of­fered to en­cour­age re­spon­si­ble sav­ing by work­ers for later life and to en­sure their in­come is not taxed twice. The In­sti­tute for Fis­cal Stud­ies think- tank has ar­gued that ‘it’s not much of a re­lief – it’s merely tax de­ferred rather than tax saved’.

But the Chan­cel­lor is un­der­stood to be con­sid­er­ing plans to re­duce the amount that can be saved tax free to help pay for a pledge to in­crease health spend­ing by £20bil­lion a year.

Any­one earn­ing less than £150,000 can cur­rently save a max­i­mum of £40,000 a year into their pen­sion pot, tax free – the so-called an­nual al­lowance.

Mr Ham­mond could cut this to £30,000 or lower and bring the thresh­old down from £ 150,000 to £ 125,000. The an­nual al­lowance was cut from £255,000 to £40,000 by Ge­orge Os­borne. And the life­time al­lowance – the amount that can be saved tax free over a life­time – has been re­duced from £1.8mil­lion to £1mil­lion. This is also un­der threat.

Mr Ham­mond said at the an­nual meet­ing of the In­ter­na­tional Mone­tary Fund in In­done­sia: ‘My gen­eral feel­ing on pen­sions tax re­lief is that it is eye-wa­ter­ingly ex­pen­sive.

‘We spend a huge amount of money on pen­sions tax re­lief but of course for many rea­sons we want peo­ple to save and have re­silience in older age.’

But for­mer pen­sions min­is­ter Steve Webb, of in­vest­ment man­ager Royal Lon­don, said: ‘Pen­sions should be a longterm busi­ness, and the con­stant short-term tin­ker­ing and spec­u­la­tion un­der­mines con­fi­dence in long-term sav­ing.’ Paul John­son, di­rec­tor at the IFS think-tank, said: ‘If you didn’t give tax re­lief on con­tri­bu­tions and con­tin­ued to charge tax on pen­sions in pay­ment that would quite sim­ply con­sti­tute dou­ble tax­a­tion.’

Mr Ham­mond in­sisted he was a low-tax Tory de­spite fig­ures show­ing the tax bur­den is head­ing to the high­est level for 50 years on his watch.

He said that, while the deficit has fallen from £153bil­lion un­der Labour in 2009-10 to less than £40bil­lion last year, the Gov­ern­ment has made some ‘very large com­mit­ments’ to ar­eas such as the NHS that need fund­ing. ‘I don’t like rais­ing taxes,’ he said. ‘But I also don’t like out of con­trol deficits. We have made some big spend­ing com­mit­ments in line with what we know to be the pub­lic’s pri­or­i­ties.

‘The con­straint is that I’m both a fis­cal dis­ci­plinar­ian in that I ex­pect to con­tinue to fo­cus on see­ing debt fall as a per­cent­age of GDP. I gen­uinely believe that lower taxes are good for the econ­omy and good for our so­ci­ety.

‘But of course we have to do that in a way that is con­sis­tent with sup­port­ing good qual­ity pub­lic ser­vices.’

Baroness Ros Alt­mann, a for­mer pen­sions min­is­ter, said: ‘ On­go­ing tin­ker­ing salami slices away the ben­e­fits of pen­sions. We need a pe­riod of sta­bil­ity so peo­ple can plan.’

WHEN Theresa May told the na­tion aus­ter­ity was al­most over, we nat­u­rally as­sumed the hard-work­ing fam­i­lies of mid­dle Bri­tain would be among the first to feel the ben­e­fit.

But if the omi­nous rum­blings from the Trea­sury are to be be­lieved, the very op­po­site may be true.

Hav­ing borne much of the brunt of aus­ter­ity for eight years, it seems the long­suf­fer­ing mid­dle classes are to be re­warded with even higher taxes and a fresh as­sault on their pen­sions.

From the ‘fis­cal drag’ that pulled an ex­tra 1.5mil­lion peo­ple into the higher-rate tax bracket, through the means-test­ing of child ben­e­fit, to the slash­ing of life­time pen­sion al­lowances, mid­dle earn­ers have seen their in­comes and sav­ings re­lent­lessly eroded in the name of deficit re­duc­tion.

There was a time when a Tory gov­ern­ment would have recog­nised their sac­ri­fice – but not to­day. Speak­ing in the trop­i­cal idyll of Bali yes­ter­day (all right for some!), Philip Ham­mond ac­tu­ally sounded as if he wanted to pun­ish them.

He ef­fec­tively be­rated savers for pay­ing into pen­sion schemes, say­ing the tax re­lief in­volved was ‘eye-wa­ter­ingly ex­pen­sive’.

And he hinted that promised in­creases in the per­sonal in­come tax al­lowance and 40p higher rate thresh­old would be frozen, to pay for the sham­bles over the roll-out of Universal Credit.

Is this any way for a Tory Chan­cel­lor to be­have?

With our rapidly age­ing pop­u­la­tion and care cri­sis, the Gov­ern­ment should surely en­cour­age peo­ple to pro­vide for their own re­tire­ment – thereby re­mov­ing a huge bur­den from the state.

They al­ready pay in­come tax when they take their pen­sions, so why on earth should they be forced to pay it twice?

Yes, more funds should be in­jected into Universal Credit – a laud­able scheme founded on the sound Con­ser­va­tive prin­ci­ple that the wel­fare sys­tem should never dis­cour­age peo­ple from work­ing.

It’s in dan­ger of fail­ing be­cause Mr Ham­mond’s pre­de­ces­sor Ge­orge Os­borne tried to im­ple­ment it on the cheap, and must be saved.

Equally, Mrs May’s £20bil­lion boost for the NHS has to be paid for. But fleec­ing mid­dle earn­ers is not the way – and cer­tainly not the Tory way.

Taxes are al­ready at their high­est since the slump of the early 1980s. And his­tory tells us high taxes are counter-pro­duc­tive – even­tu­ally bring­ing lower re­turns.

For ex­am­ple, huge rises in stamp duty saw the Trea­sury re­ceive £1bil­lion less in an­nual rev­enue, while the re­duc­tion in the top rate of in­come tax from 50p to 45p in 2013 saw an £8bil­lion rise in pay­ments. Cuts to cor­po­ra­tion tax have also pro­duced soar­ing re­ceipts.

The truth is Bri­tain is cur­rently en­gaged in a war of ide­olo­gies. On one side stands Labour, with its big- state, Marx­ist prospec­tus of high taxes and ru­inous bor­row­ing to fund a pub­lic spend­ing orgy.

On the other stand the Tories, who should be pro­vid­ing a rad­i­cal al­ter­na­tive – ex­tolling the virtues of a small state, low-tax econ­omy, which re­wards self-re­liance and thrift.

Right now, they’re mak­ing a spec­tac­u­larly poor job of it. MEAN­WHILE, the rec­om­men­da­tion that judges should re­ceive a 32 per cent pay rise plays right into Jeremy Cor­byn’s class war agenda. At any time, this would be a lav­ish in­crease. When other pub­lic sec­tor work­ers have had below-in­fla­tion rises for years, it’s quite sim­ply un­con­scionable. THE £300,000 award to a civil ser­vant hounded out of his job un­der Com­mon­wealth sec­re­tary gen­eral Baroness Scot­land marks an ig­no­min­ious low point for both the of­fice and its holder. Given that she was al­ready un­der fire for her ex­trav­a­gant be­hav­iour and al­le­ga­tions of crony­ism, isn’t it time Lady Scot­land con­sid­ered her po­si­tion?

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