A huge hurrah for brave blitz on the rules
NORMALLY, chancellors of the Exchequer disappoint rather than please when they deliver their Budgets. Their need to keep the nation’s finances on an even keel often results in nasty tax rises, hitting us all in the pocket.
And when they do go off piste – as Kwasi Kwarteng did in spectacular fashion last year – market disappointment prevails, with painful economic consequences.
Somehow, Jeremy Hunt produced a Budget yesterday that did not disappoint. Far from it.
Despite a challenging economic backdrop and inflation still raging in doubledigit territory, ‘Steady Eddie’ Jeremy came up with the goods – a plan to put the economy back on a growth trajectory. He even said it was likely that recession would be avoided this year. Hurrah, I say.
To my surprise, there was plenty to like about the Budget, particularly the emphasis on encouraging people back into the workplace. It is crazy that swathes of small businesses are currently unable to function properly because they can’t fill vacancies.
This inhibits economic growth. Greater help for parents to meet childcare costs, enabling them to go back to work, was a big and welcome move. And I say that as someone whose kids have long fled the nest. But it was Hunt’s radical decision to make pension saving more rewarding that stood out as the highlight of this Budget. Some readers may well disagree, but hear me out (especially if you are a diehard Conservative).
I make this bold claim not because the measure (the scrapping of the lifetime allowance) will enable the wealthy to accumulate ever larger pension funds without being stung with a tax on investment success (as is the case now). Currently, any pension fund in excess of £1,073,100 faces a tax charge on the surplus of up to 55 per cent.
No, I make this claim because: a) scrapping the cap is fair; and b) its abolition represents the kind of free market policy I expect (and want to see more of) from a Conservative Government that stands four square behind the principle of rewarding success in all areas of our lives.
In some ways, Hunt’s move reminds me of the kind of political thinking that underpinned the policies of Margaret Thatcher in the 1980s. She championed the right of individuals to better themselves through hard work and graft. To look after themselves rather than rely on a nanny state.
Hunt’s abolition of the pension lifetime allowance is of the same ilk. No one should be encouraged to save for their financial future – and then be told they face an extra tax bill because they have done exactly what they were told to do and built a retirement fund fit for purpose.
I’ve argued for the lifetime allowance to be axed for many years.
You can’t justify controlling the amount of money people put into their pension fund (the maximum is set to jump from £40,000 to £60,000 per tax year) – and then also dictate how much it can grow to. It has to be one or t’other. I’ve barked loudly about this and no one listened until now. So thank you Chancellor.
For too long, this Conservative Government has done things that I would normally expect from a Labour administration.
It has demanded we take bigger income tax hits, as well as restricted our ability to earn tax-free capital gains and dividend income on our investments. It has also inhibited the right of individuals to inherit wealth by stubbornly refusing to raise the nil-rate tax band of £325,000.
LAST November, Steady Eddie imposed on us a raft of tax increases that would have brought a smile to the face of Jeremy Corbyn. Yes, there were mitigating circumstances – soaring energy bills and clearing up the mess left by Liz Truss and Kwarteng. But it left a sour taste in many people’s mouths.
Yesterday, Hunt redeemed himself. He has demonstrated that punchy Conservatism is far from dead.
Sadly, a word of warning. Nothing is a given when it comes to our pensions. Politicians love to mess with them in an attempt to reduce their cost to the public purse. Tax relief on contributions currently costs the Government around £50billion a year in foregone tax revenue. That’s a hell of a lot of money.
So, Hunt’s abolition of the lifetime allowance could be reversed in the future. Maybe by another Conservative chancellor or more likely by a Labour government looking to take revenge on the wealthy.
Or it could stay, but with cuts to other benefits that make pensions so compelling. For example, our right to take taxfree cash from our pension fund – currently 25 per cent of the fund’s value – could be restricted.
Hunt deserves a big pat on the back for liberating pension saving. More of the same please.