Rachel Reeves considers huge pension tax raid hitting millions of retirees
The Chancellor is considering a new tax on pension tax relief as the party scrabbles to find cash.
Rachel Reeves says 'we will turn our attention to pensions'
Rachel Reeves is reportedly considering a plan to whack taxes up on middle-class pensioners as Labour scrambles to find extra cash ahead of the budget.
During the election, Sir Keir Starmer repeatedly said he would not raise taxes on “working people”, leaving him open to raiding from pensioners should he win.
It has now emerged that the Chancellor is "expected to consider" Treasury proposals for a flat 30% rate of pension tax relief.
The move would result in an effective 10% tax hike on retirement contributions by higher-rate taxpayers, and could affect up to 6 million Brits.
The move would raise billions for the Government, while costing the highest pension savers around £2,600.
Under the Treasury proposals, the current tiered rate of pension tax relief - 20%, 40%, and 45% - would be merged into a new flat rate of either 20% or 30%.
The Telegraph reports sources arguing that the 30% proposal would be politically easier at it could be sold by Labour as a pensions bonanza for millions of basic rate taxpayers, while pinching from the wealthiest savers.
During the General Election, the Tories accused Labour of preparing to target pensioners with a tax raid to fill a £38.5 billion black hole.
They pointed to one 2018 document on Ms Reeve’s website proposing a restriction of pension tax relief to the basic 20% rate only in order to find extra cash.
She argued that savings held in private pensions as an “inequality”, and said in order to combat this a “higher-rate pensions contribution reliefs could be restricted”’ to raise £20 billion a year of tax revenue.
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The then-Pensions Secretary Mel Stride warned voters: “Keir Starmer and Rachel Reeves have already confirmed they will introduce the Retirement Tax on your state pension, now they are coming after your workplace pensions”.
“Having u-turned on their plans for a VAT increase, Labour face a £38.5billion black hole which they would have to fill with tax increases. Now we know Rachel Reeves' preference: another tax raid on pensions just like her mentor Gordon Brown’s.”
Since promoting the 2018 pamphlet, Ms Reeves has insisted she has “no plans” to change the current pension tax relief regime.
However the Treasury did not deny plans for such a change to pension savings, telling the Telegraph: “We have set out the need for economic stability and we have begun fixing the foundations so we can grow our economy and keep taxes, inflation and mortgages as low as possible.”
A 30% flat rate of tax relief would be the equivalent of a £2.7 billion increase in tax, according to the IFS.
While it would save the bottom 80% of earners around £230 a year, the top 10% would see a tax hike of a whopping £2,600.
However proposals to set the flat rate at 20% would represent an eye-watering £15.1 billion - the equivalent of a 2p rise in the basic rate of income tax.
