Pensions ‘stealth tax’ feared as Sunak plans Recovery Budget
FEARS are rising that Rishi Sunak is about to hit pension savers with a “stealth tax” in next week’s Budget as the Chancellor charts the long process of boosting Treasury coffers to fill the financial black hole left by the pandemic.
With public borrowing set to hit an eye-watering £400 billion by the end of the financial year in April – last March it was forecast to be just £55bn – tax increases are on their way, although as Conservative colleagues urge him to stay his hand, the real pain is likely to come in November when Mr Sunak is expected to hold a second Budget when most of the effects of Covid are, hopefully, behind the country.
The Chancellor is set to announce a £126 million boost for traineeships in England, enabling the creation of 40,000 additional traineeships. The money will mean a knock-on boost for the Scottish Government of more than £10m under the Barnett Formula.
He will also unveil a new fast-track visa route making it easier for financial technology firms to attract highly skilled migrants.
As speculation ahead of the Chancellor’s set-piece “fiscal event” rages, it is suggested he is set to freeze the lifetime allowance on pensions – the amount people can save before tax charges kick in – at just over £1 million.
This means more of “middle Britain” will be dragged into the tax net as the current level is maintained; it had been expected the lifetime allowance would increase by £5,800 in 2021/22, in line with inflation.
It is estimated a freeze would mean an additional 10,000 people with larger pensions could pay more than £22,000 extra in tax by 2024.
“If we see a vaccine-inspired spending boom in the UK this summer, for example, inflation could be pushed northwards and so too would the lifetime allowance under current legislation. By freezing the lifetime allowance as inflation spikes, the Chancellor will stealthily drag thousands more people into his tax net,” said
Tom Selby, a senior analyst at the AJ Bell investment consultancy.
He noted how £1m might sound like a huge pension pot but when stretched over a 30-year retirement “it becomes far more modest”.
Next Wednesday, the Chancellor is expected to extend the Covid aid packages until July, including the furlough scheme, VAT and business rate relief, stamp duty holiday in England and the extension to £20
weekly rise in Universal Credit as Britain slowly eases itself from the clutches of the coronavirus.
A feared rise in fuel duty looks as though it has been stayed for now..
There are also suggestions Mr Sunak could: l Relaunch the Eat Out to Help Out scheme. l Introduce vouchers for high street shoppers. l Bring in lower alcohol duty for restaurants and pubs, given the sector will continue to be impacted by restrictions until early summer.
The SNP is demanding the Chancellor plug the gaps in support for the “millions who have been excluded” from UK Government coronavirus schemes.
It noted the Resolution Foundation think-tank estimated that one in three people in self-employment, some 1.7m,
including around 330,000 in Scotland, were at risk of losing their income.
Alison Thewliss, the SNP’S spokeswoman on economic affairs, said there was no excuse for the Government’s “abject failure” in helping many self-employed people and called on Mr Sunak to heed the widespread calls from cross-party MPS and anti-poverty campaigners to act.
There is also a growing belief the Chancellor’s Budget could introduce a couple of business taxes; raising corporation tax and slapping an “Amazon Tax” on digital giants, which have benefited greatly from consumers’ growing online habits at the expense of the physical High Street stores.
Labour has made clear it believes now would be the wrong time to increase the tax on company profits.
Shadow chancellor Anneliese Dodds
has questioned the need for “immediate” changes to the tax system after her party leader Sir Keir Starmer insisted “now is not the time” for tax increases.
Indeed, some Conservatives have opposed increasing taxes at this time. Former prime minister David Cameron insisted it “wouldn’t make any sense at all” to raise taxes just as the country was reopening from the lockdown.
But Downing Street has warned any would-be Tory rebels that voting against the Budget would be regarded as a confidence issue, meaning they could be stripped of the party whip.
Tory backbencher Julian Knight, who chairs the Commons Culture Committee, urged the Chancellor to support the festivals sector so it could stage a raft of events this summer while 68 Tory MPS have called for a cut in beer tax to help hard-hit pubs.
If we see a vaccineinspired spending boom, inflation could be pushed northwards