Treasury Plots Tax Raid on ‘One of the Few Well-Functioning Parts of Britain’s Tax System’
25 July 2024
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In the Media
Eamonn Butler writes for The Spectator
24 July 2024
Labour Market
Economic Theory
11 November 2024
Matthew Lesh writes for The Telegraph
IEA Director of Public Policy and Communications Matthew Lesh has written for The Daily Telegraph warning against reported plans to reduce the amount of pension contributions which people can offset through tax deductions.
Matthew wrote:
“Currently, pension contributions can be deducted against taxable income, including at the higher marginal rates. The Treasury is proposing to change this to what is often described erroneously as a flat 30 per cent tax relief. This would have a dual effect of making higher and additional rate taxpayers pay more tax while providing an effective top-up to lower rate taxpayers who pay tax rates below that threshold.
“The proposed changes would create a much messier system. Six million higher earners, and more over the coming years, would be forced into paying 10 to 15 per cent top-up taxes on their pension contributions. But then lower earners would have their savings arbitrarily subsidised. A £100 into a pension would be supplemented with an extra £30 from the Treasury – a money merry-go-round.
“According to the Institute for Fiscal Studies, a 30 per cent flat rate relief would raise just £2.7 billion a year. This is nothing compared to the £10 billion a year cost of planned above-inflation public sector pay increases it is meant to help fund.
“In any case, revenue benefits will likely be limited in the long run. That’s because the threat of paying tax on the way in and way out of their pensions, effectively double taxation, will encourage higher earners to save less.”
Read Matthew’s full piece here.
Matthew wrote:
“Currently, pension contributions can be deducted against taxable income, including at the higher marginal rates. The Treasury is proposing to change this to what is often described erroneously as a flat 30 per cent tax relief. This would have a dual effect of making higher and additional rate taxpayers pay more tax while providing an effective top-up to lower rate taxpayers who pay tax rates below that threshold.
“The proposed changes would create a much messier system. Six million higher earners, and more over the coming years, would be forced into paying 10 to 15 per cent top-up taxes on their pension contributions. But then lower earners would have their savings arbitrarily subsidised. A £100 into a pension would be supplemented with an extra £30 from the Treasury – a money merry-go-round.
“According to the Institute for Fiscal Studies, a 30 per cent flat rate relief would raise just £2.7 billion a year. This is nothing compared to the £10 billion a year cost of planned above-inflation public sector pay increases it is meant to help fund.
“In any case, revenue benefits will likely be limited in the long run. That’s because the threat of paying tax on the way in and way out of their pensions, effectively double taxation, will encourage higher earners to save less.”
Read Matthew’s full piece here.
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