Hammond should not target pensions

Next Monday is Budget day, brought forward in order that it would not clash with the final stages of Brexit which now appear to have been postponed. It had been hoped that with the final shape of the UK’S divorce almost settled and work well advanced on future trade arrangements, the Chancellor could frame an ambitious Budget for Brexit.

But all the signs are that Philip Hammond will be far more cautious, waiting to see what happens. The expectation is that his principle aim is to find money to meet public sector spending pledges, either for more money for the NHS or higher pay for employees. Theresa May told the Tory conference that “austerity is over”. How will the Chancellor turn that into a reality?

One disturbing suggestion is that he will target pensions. Most people see pensions as a saving for their dotage, one helped by tax breaks so they can put more of their own money away rather than have it taken by the state. But the Treasury sees them differently. Pensions cumulatively are vast untapped funds sitting there ready to be pillaged. Mr Hammond gave an indication of this thinking recently when he called the tax breaks for pensions “eye-watering” and said nothing was off the table for the Budget. The annual net cost to the Treasury is about £25 billion.

The tax incentives to save that have helped many people enjoy a decent retirement have been watered down over the decades, adding to a sense among young adults that the “baby boomers” were better treated than they are. If Mr Hammond hits tax breaks again it is young savers who will be hardest hit since their parents will already have accumulated a reasonable pension.

One estimate suggests that more than 100,000 earners could lose £4,000 each a year in tax relief under one proposal being considered. Yet changes to the lifetime and annual pension allowances have come thick and fast in recent years as a cashhungry state has raided the national piggy bank. This is just storing up trouble for decades to come in order to curry short-term favour with those for whom spending matters more than saving.

While the Government concedes there is no consensus for root-and-branch overhaul of the system it has left room for other incremental changes. Our advice to the Chancellor, even at this late stage of Budget planning, is to leave our pensions alone.