Labour on Thursday vowed to reverse chancellor Jeremy Hunt’s controversial Budget move to provide a big pension tax break to the well-off, calling it “the wrong priority, at the wrong time, for the wrong people”.
The main UK opposition party attacked Hunt’s decision to scrap the £1mn lifetime allowance on tax free pension contributions, and to increase the annual limit from £40,000 to £60,000, as voters struggle with high taxes and the cost of living crisis.
Labour claimed the chancellor’s decision exposed the Conservatives’ default setting of wanting to help the rich, and highlighted how the move also involved benefits relating to inheritance tax.
Hunt insisted the pension tax break would help keep skilled older workers in their jobs, notably senior NHS doctors and consultants.
Labour said the changes to pension lifetime and annual allowances, which together will cost more than £1bn a year, would see the “top 1 per cent of pension savers getting a massive tax break for their retirement” — potentially netting an average of £45,000, according to the party’s analysis.
It came as the Office for Budget Responsibility highlighted how Hunt’s “stealth tax” rise — a continued freeze in income tax and national insurance thresholds — would amount to a 4p increase in the basic rate of income tax by 2027, increasing the tax burden to its highest postwar level.
In the aftermath of the Budget, Hunt faces trouble on two fronts, with rightwing Tory MPs and newspapers urging him to cut taxes now, and Labour urging him to reverse the pensions benefits for the wealthy.
Shadow chancellor Rachel Reeves said Labour would force a House of Commons vote on the pension changes on Tuesday.
“The only permanent tax giveaway . . . was for people who can save more than £1mn into their pensions while ordinary voters see their taxes go up,” Reeves told the BBC. “That would not be my priority.”
Reeves said a Labour government would reinstate the lifetime pension allowance and create a targeted scheme for doctors rather than allowing a “free-for-all for the wealthy few”.
Hunt claimed his move would fix “a specific problem in the NHS” of senior doctors retiring early or refusing to take on extra hours because of pension tax rules. “It’s not the wrong values to support the NHS,” he said.
The chancellor declined to say how many doctors he thought would stay in the NHS as a result of the policy.
Sir Edward Troup, former executive chair of HM Revenue & Customs, said however “good the doctors’ case may be, offering an uncapped further tax break to high-earning self-employed professionals . . . fails every test of value for money and common sense”.
Sir Steve Webb, a former pensions minister, said doctors had already been advised to delay their retirement until Hunt’s changes came in and he thought government officials had underestimated the cost of scrapping the £1mn lifetime allowance.
“If I was in this position as an individual and I thought that the next government might put the limit back in, I’d fill my boots in the next two years, have a bit of a gold rush, and then crystallise on the eve of the general election,” he added.
Pensions are normally exempt from inheritance tax and can be used by parents to hand money down to children in a tax-efficient way.
Arun Advani, professor of economics at the University of Warwick, said the combination of uncapped pension pots and the ability to pass them tax-free to your kids “means pensions are becoming much more about inheritance than about retirement”.
The Treasury said that if someone passed on their pension, their heir would pay income tax when they drew it down.